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<TITLE>FORM S-1</TITLE>
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<B><FONT size="2">As filed with the Securities and Exchange
Commission on July&nbsp;1, 2004</FONT></B>
</DIV>

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<B><FONT size="2">Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B>
</DIV>

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<B><FONT size="4">SECURITIES AND EXCHANGE COMMISSION</FONT></B>

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<B>Washington,&nbsp;D.C. 20549</B>
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<B><FONT size="5">Form S-1</FONT></B>

<DIV align="center">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center">
<B>UNDER</B>
</DIV>

<DIV align="center">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

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<B><FONT size="6">Alloy, Inc.</FONT></B>

<DIV align="center">
<I><FONT size="2">(Exact name of registrant as specified in its
charter)</FONT></I>
</DIV>

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    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="26%"><FONT size="2">&nbsp;</FONT></TD>
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<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Delaware</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">5961</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">04-3310676</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I><FONT size="2">(State or other jurisdiction of<BR>
    incorporation or organization)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(Primary Standard Industrial<BR>
    Classification Code No.)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(I.R.S. Employer<BR>
    Identification No.)</FONT></I></TD>
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<B><FONT size="2">151 West 26th Street, 11th Floor, New York,
New York, 10001, (212)&nbsp;244-4307</FONT></B>

<DIV align="center">
<I><FONT size="2">(Address, including zip code, and telephone
number, including area code, of registrant&#146;s principal
executive offices)</FONT></I>
</DIV>

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<B><FONT size="2">Matthew C. Diamond</FONT></B>

<DIV align="center">
<B><FONT size="2">Chief Executive Officer</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Alloy, Inc.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">151 W 26th Street, Suite&nbsp;11th
Floor</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">New York NY 10001</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(212)&nbsp;244-4307</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Name, address, including zip code, and
telephone number, including area code, of agent for
service)</FONT></I>
</DIV>

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<B><I><FONT size="2">Copies to:</FONT></I></B>

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    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
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<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Samuel A. Gradess<BR>
    Chief Financial Officer<BR>
    Alloy, Inc.<BR>
    151 W 26th Street, Suite&nbsp;11th Floor<BR>
    New York NY 10001<BR>
    (212)&nbsp;244-4307</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Richard M. Graf<BR>
    Katten Muchin Zavis Rosenman<BR>
    1025 Thomas Jefferson Street, N.W.<BR>
    East Lobby, Suite&nbsp;700<BR>
    Washington,&nbsp;D.C. 20007-5201<BR>
    (202) 625-3537</FONT></B></TD>
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<P align="center">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;<B>Approximate date of
commencement of proposed sale to the public:</B>
</FONT>

<DIV align="center">
<FONT size="2">From time to time after the effective date of
this Registration Statement.
</FONT>
</DIV>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;If any of the securities being
registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule&nbsp;415 under the Securities
Act of 1933, check the following
box.&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#254;</FONT>
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;If this Form is filed to
register additional securities for an offering pursuant to
Rule&nbsp;462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;If this Form is a
post-effective amendment filed pursuant to Rule&nbsp;462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;If this Form is a
post-effective amendment filed pursuant to Rule&nbsp;462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;If delivery of the prospectus
is expected to be made pursuant to Rule&nbsp;434, check the
following box.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

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<B><FONT size="2">CALCULATION OF REGISTRATION FEE</FONT></B>

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    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="16%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="17%"><FONT size="2">&nbsp;</FONT></TD>
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    <TD colspan="9"></TD>
</TR>

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    <TD colspan="9" align="center" nowrap><HR size="1" noshade></TD>
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    <TD colspan="9"></TD>
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    <TD colspan="3"></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed Maximum</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed Maximum</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title of Each Class of</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount to be</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Offering Price</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Aggregate</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Registration</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Securities to be Registered</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Registered(1)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Per Share or Debenture</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Offering Price</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Fee</FONT></B></TD>
</TR>

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    <TD colspan="9"></TD>
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<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">5.375%&nbsp;Convertible Senior Debentures due 2023
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$47,100,000(2)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">100%(3)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">100%(3)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">(6)
    </FONT></TD>
</TR>

<TR>
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    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common Stock, $0.01&nbsp;par value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">6,873,883(4)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$5.69(5)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$39,112,394.27
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$901.15(1)(6)
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock Purchase Rights
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">6,873,883(6)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">&#151;
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">&#151;
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">(6)
    </FONT></TD>
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    <TD colspan="9" align="left"><HR size="1" noshade></TD>

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<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
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<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Pursuant to Rule&nbsp;429 under the Securities
    Act of 1933, as amended, this Registration Statement contains a
    Prospectus that also relates to $47,100,000 in aggregate
    principal amount of Registrant&#146;s 5.375%&nbsp;Convertible
    Senior Debentures Due 2023 (the &#147;Debentures&#148;),
    5,623,882&nbsp;shares of the Registrant&#146;s common stock that
    are currently issuable upon conversion of the Debentures (the
    &#147;Previously Registered Common Stock&#148;) and
    5,623,882&nbsp;shares of the Registrant&#146;s Preferred Stock
    Purchase Rights that represent Rights to acquire shares of the
    Registrant&#146;s Series&nbsp;C Junior Participating Preferred
    Stock which are attached to and trade with the common stock of
    the Registrant (the &#147;Previously Registered Preferred Stock
    Purchase Rights,&#148; and together with the Debentures and the
    Previously Registered Common Stock, the &#147;Previously
    Registered Securities&#148;), registered by the
    Registrant&#146;s Registration Statement on Form&nbsp;S-3
    previously filed with the Commission on October&nbsp;17, 2003
    (No. 333-109786). A filing fee of $5606.37 was paid previously
    by the Registrant in connection with the registration of the
    Previously Registered Securities.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents the aggregate principal amount of the
    debentures that were originally issued by the Registrant, but
    were not sold under the Registration Statement on Form&nbsp;S-3
    previously filed with the Commission on October&nbsp;17,
    2003&nbsp;(No. 333-109786).
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Equals the actual issue price of the aggregate
    principal amount of the debentures being registered. Estimated
    solely for the purpose of computing the registration fee
    pursuant to Rule&nbsp;457(o) under the Securities Act.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents 1,250,001&nbsp;shares of common stock
    that were issued in connection with our acquisition of InSite
    Advertising, Inc. and 5,623,882&nbsp;shares of common stock that
    are currently issuable upon conversion of the Debentures. The
    number of shares of common stock that may be issued in the
    future is indeterminate, and the Registrant is also registering
    this indeterminate amount pursuant to Rule&nbsp;416 of the
    Securities Act.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The price of $5.69&nbsp;per share, which was the
    average of the high and low prices of the Registrant&#146;s
    Common Stock, as reported on the Nasdaq National Market on
    June&nbsp;24, 2004, is set forth solely for purposes of
    calculating the registration fee pursuant to Rule&nbsp;457(c) of
    the Act, as amended.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">No separate consideration will be received for
    the 5,623,882 shares of common stock issuable upon conversion of
    the Debentures and, therefore, no registration fee is required
    pursuant to Rule&nbsp;457(i) under the Securities Act in
    connection with the registration of such shares.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Rights to acquire shares of the Registrant&#146;s
    Series&nbsp;C Junior Participating Preferred Stock are attached
    to and trade with the common stock of the Registrant. Value
    attributable to such rights, if any, is reflected in the market
    price of the common stock. No registration fee is required
    pursuant to Rule&nbsp;457(h)(2).
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;<B>The Registrant hereby
amends this Registration Statement on such date or dates as may
be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section&nbsp;8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to
Section&nbsp;8(a), may determine.</B>
</FONT>

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<TABLE width="100%" border="1" cellpadding="5"><TR><TD>
<FONT size="2" color="#E8112D">The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
</FONT>
</TD></TR></TABLE>

<P align="center">
<B><FONT size="2" color="#E8112D">SUBJECT TO COMPLETION, DATED
JULY&nbsp;1, 2004</FONT></B>

<P align="left">
<B><FONT size="2">PROSPECTUS</FONT></B>

<DIV align="center">
<B><FONT size="6">Alloy, Inc.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="4">1,250,001&nbsp;Shares of Common Stock and
Preferred Stock Purchase Rights</FONT></B>

<P align="center">
<B><FONT size="4">$47,100,000 Aggregate Principal Amount of
Alloy, Inc.</FONT></B>

<DIV align="center">
<B><FONT size="4">5.375%&nbsp;Convertible Senior Debentures due
2023 and Shares of</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="4">Common Stock and Preferred Stock Purchase
Rights</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="4">Issuable Upon Conversion of the
Debentures</FONT></B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have prepared
this prospectus to allow the selling stockholders we describe to
sell up to 1,250,001&nbsp;shares of our common stock. The
selling stockholders acquired and may acquire the shares being
registered hereby in connection with our acquisition of InSite
Advertising, Inc. (&#147;InSite&#148;). We also sold $69,300,000
aggregate principal amount of our 5.375%&nbsp;Convertible Senior
Debentures due 2023 in private transactions, which closed
July&nbsp;23, 2003 and August&nbsp;20, 2003, $22,200,000 of
which were sold pursuant to the Registration Statement on
Form&nbsp;S-3 previously filed with the Commission on
October&nbsp;17, 2003 (Registration No.&nbsp;333-109786).
Selling debentureholders may use this Prospectus to resell from
time to time their debentures and the shares of common stock
issuable upon conversion of the debentures. We will not receive
any of the proceeds from the sale of any of these securities.
</FONT>

<P align="left">
<B><FONT size="2">DEBENTURES; CONVERSION</FONT></B>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will pay 5.375%
interest per annum on the outstanding principal amount of each
debenture, payable semi-annually in arrears on February 1 and
August&nbsp;1 of each year beginning on February&nbsp;1, 2004.
The debentures will mature on August&nbsp;1, 2023.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The debentures are
convertible at the holder&#146;s option into shares of our
common stock at an initial conversion price of $8.375&nbsp;per
share, which is equal to a conversion rate of approximately
119.403&nbsp;shares per $1,000 principal amount of debentures,
subject to adjustment, under the following circumstances only:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during any &#147;Conversion Period&#148; (which
    is any period from and including the thirtieth trading day in
    any fiscal quarter of ours to, but not including, the thirtieth
    trading day in the immediately following fiscal quarter) if the
    closing sale price of our common stock for at least 20
    consecutive trading days in the 30 consecutive trading-day
    period ending on the last trading day of the immediately
    preceding fiscal quarter exceeds 110% of the conversion price on
    that 30th trading day,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on or before August&nbsp;15, 2018, during any 5
    business day period immediately following any 10 consecutive
    trading-day period (the &#147;Debenture Measurement
    Period&#148;) in which the average trading price for the
    debentures during that Debenture Measurement Period was less
    than 98% of the average conversion value for the debentures
    during such Debenture Measurement Period,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">upon the occurrence of certain specified
    corporate transactions,&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">if we have called the debentures for redemption.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">DEBENTURE REDEMPTION AND REPURCHASE</FONT></B>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not redeem
the debentures prior to August&nbsp;1, 2008. Thereafter, we may
redeem the debentures, in whole or in part, at the redemption
prices specified elsewhere in this prospectus. See
&#147;Description of the Debentures&nbsp;&#151; Optional
Redemption.&#148;
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debenture holders
may require us to repurchase for cash all or a portion of their
debentures on August&nbsp;1, 2008, 2013 and 2018 at a repurchase
price equal to 100% of the principal amount of their debentures
plus any accrued and unpaid interest to, but excluding, the date
of repurchase.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debenture holders
may require us to repurchase for cash all or a portion of their
debentures upon a change of control, in certain circumstances
and subject to certain conditions. In such case, we will pay a
repurchase price equal to 100% of the principal amount of the
debentures being repurchased plus accrued and unpaid interest
to, but excluding, the repurchase date.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The debentures
originally sold in private placement transactions are eligible
for trading in the PORTAL<SUP>SM</SUP> Market of the National
Association of Securities Dealers, Inc. The debentures sold
using this prospectus, however, will no longer be eligible for
trading in the PORTAL<SUP>SM</SUP> Market. We do not intend to
list the debentures on any other national securities exchange or
in any automated quotation system.
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is
traded on the Nasdaq National Market under the trading symbol
&#147;ALOY.&#148; On June&nbsp;30, 2004, the last reported sale
price for our common stock on the Nasdaq National Market was
$6.15&nbsp;per share.
</FONT>

<P align="center">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investing in our common stock
and debentures involves risks</B>

<DIV align="center">
<B>See &#147;Risk Factors That May Affect Future Results&#148;
beginning on page 7</B>
</DIV>

<P align="left">
<B><FONT size="2">Neither the Commission nor any state
securities regulator has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. It is a criminal offense to make any representation
to the contrary.</FONT></B>

<P align="center">
<FONT size="2">This prospectus is
dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004.
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">

</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">You should rely only on the information
contained in this prospectus. We have not authorized anyone to
provide you with information different from that contained in
this prospectus. Neither the delivery of this prospectus nor any
distribution of the debentures or shares of common stock
pursuant to this prospectus shall, under any circumstances,
create any implication that there has been no change in our
affairs since the date of this prospectus.</FONT></B>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="93%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#101'>Prospectus Summary</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">1
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#103'>Risk Factors That May Affect
    Future Results</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">7
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#104'>You Should Not Rely on
    Forward Looking Statements Because They are Inherently
    Uncertain</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">16
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#124'>Ratio of Earnings to Fixed
    Charges</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">16
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#105'>Use of Proceeds</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">17
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#106'>Common Stock Price Ranges</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">17
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#107'>Dividend Policy</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">17
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Selected Financial Data</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">18
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Management&#146;s Discussion
    and Analysis</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">20
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#110'>Our Business</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">37
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#111'>Properties</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">46
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#112'>Legal Proceedings</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">47
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#113'>Management</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">50
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#114'>Executive Compensation</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">54
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#115'>Certain Relationships and
    Related Party Transactions</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">57
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#116'>Principal and Selling
    Securityholders</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">57
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#117'>Description of Capital
    Stock</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">62
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#118'>Description of the
    Debentures</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">65
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#119'>Certain United States
    Federal Income Tax Consequences</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">81
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#120'>Plan of Distribution</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">86
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#121'>Legal Matters</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">88
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#122'>Experts</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">88
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#123'>Where You Can Find More
    Information</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom">
    <FONT size="2">88
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">ii
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left">
<A name='101'></A>
</DIV>

<!-- link1 "PROSPECTUS SUMMARY" -->

<P align="center">
<B><FONT size="2">PROSPECTUS SUMMARY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This summary highlights certain information
contained elsewhere in this prospectus. This summary does not
contain all of the information you should consider before
investing in the debentures. You should carefully read the
entire prospectus, including &#147;Risk factors&#148; and our
financial statements and related notes, before you decide
whether to invest in the debentures or common stock. References
to &#147;we,&#148; &#147;our,&#148; &#147;our company,&#148;
&#147;us,&#148; &#147;the Company&#148; or &#147;Alloy&#148;
refer to Alloy, Inc.
</FONT>

<P align="center">
<B><FONT size="2">OUR COMPANY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a media, marketing services, direct
marketing and retail company targeting Generation&nbsp;Y, the
approximately 60&nbsp;million boys and girls in the United
States between the ages of 10 and 24. Our business integrates
direct mail catalogs, retail stores, print media, display media
boards, websites, on-campus marketing programs and promotional
events, and features a portfolio of brands that are well known
among Generation&nbsp;Y consumers and advertisers. We reach a
significant portion of Generation&nbsp;Y consumers through our
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, we are
able to offer advertisers targeted access to the youth market.
We sell third-party branded and private label products in key
Generation&nbsp;Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, our assets have enabled us to build a
comprehensive database that includes information about
approximately 27&nbsp;million Generation&nbsp;Y consumers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We generate revenue from three principal
sources&nbsp;&#151; direct marketing, retail stores, and
sponsorship and other activities. From our catalogs and
websites, we sell branded products in key Generation&nbsp;Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Our dELiA*s retail
stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. We
generate sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach
Generation&nbsp;Y. Advertisers can reach Generation&nbsp;Y
through integrated marketing programs that include our catalogs,
books, websites, and display media boards, as well as through
promotional events, product sampling, college and high school
newspaper advertising, customer acquisition programs and other
marketing services that we provide.
</FONT>

<P align="center">
<B><FONT size="2">OUR MEDIA AND MARKETING PROPERTIES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business integrates the following assets to
deliver comprehensive access to Generation&nbsp;Y:
</FONT>

<P align="left">
<B><FONT size="2">DIRECT MARKETING CATALOGS&nbsp;&#38;
WEBSITES</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Alloy
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Markets apparel, accessories and housewares
    targeting girls; website (www.alloy.com) provides commerce and
    interactive content.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">dELiA*s
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Markets apparel, accessories, home furnishings
    and housewares targeting teenage girls and young women; website
    (www.delias.com) provides commerce and interactive content.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">CCS
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Markets skateboarding and snowboarding related
    equipment, apparel and accessories targeting boys; website
    (www.ccs.com) provides commerce and interactive content.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Dan&#146;s Comp
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Markets BMX bikes and related equipment, apparel
    and accessories targeting boys; website (www.danscomp.com)
    provides commerce and content.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">MARKETING SERVICES AND PROMOTIONAL
MARKETING</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">360 Youth
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Our media and marketing arm, which includes the
    assets and experience of several college and teen marketing
    companies, including CASS Communications, Market Place Media,
    Youthstream and
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="29%"></TD>
    <TD width="71%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">others; enables advertising clients to reach more
    than 25&nbsp;million Generation&nbsp;Y consumers each month
    through a mix of programs incorporating proprietary media assets
    such as school-based media boards, websites and catalogs, as
    well as college, high school, military base and multi-cultural
    newspapers.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Alloy Marketing and Promotions
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Our promotional marketing unit specializing in
    event and field marketing, sampling and acquisitions programs;
    includes the assets and experience of established promotion
    agencies and marketing services companies, including the 360
    Youth business of MarketSource Corporation, Triple Dot
    Communications, Y-Access and Target Marketing&nbsp;&#38;
    Promotions.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">On Campus Marketing
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Direct marketer of college- or
    university-endorsed products.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">InSite Advertising
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Out-of-home display advertising in bars,
    restaurants and nightclubs, and event and promotional marketing;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">eStudentLoan
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Website featuring college scholarship and
    financial aid database search engines.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">PRINT MEDIA</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Private Colleges&nbsp;&#38; Universities
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Publishes college and university guide books
    distributed to college-bound high school students and operates
    related websites.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Career Recruitment Media
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Publishes targeted career recruitment
    publications.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Alloy Entertainment/ 17th Street Productions
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Develops books and other entertainment properties.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">RETAIL STORES</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">dELiA*s
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">As of June&nbsp;8, 2004 we operated 57 dELiA*s
    stores, including six outlet stores, in 22&nbsp;states. These
    stores range in size from 2,500 to 5,100&nbsp;square feet with
    an average size of approximately 4,375&nbsp;square feet.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our principal executive offices are located at
151&nbsp;W.&nbsp;26th Street, 11th Floor, New York, NY 10001.
Our telephone number is (212)&nbsp;244-4307.
</FONT>

<DIV align="left">
<A name='102'></A>
</DIV>

<!-- link1 "RATIO OF EARNINGS TO FIXED CHARGES" -->

<P align="center">
<B><FONT size="2">RATIO OF EARNINGS TO FIXED CHARGES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows the ratio of earnings
to fixed charges for us and our consolidated subsidiaries for
the periods indicated.
</FONT>

<CENTER>
<TABLE width="50%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Years ended January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Three months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;(a</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;(b</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(c)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;(d</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;(e</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These ratios have been calculated by dividing
(i)&nbsp;income before income taxes plus fixed charges (adjusted
for capitalized interest) by (ii)&nbsp;fixed charges. Fixed
charges consist of interest incurred (expensed or capitalized),
preferred stock dividends and accretion of discount and the
portion of rent expense (one-third) on our operating leases
which we believe is deemed representative of interest.
</FONT>

<P align="left">
<FONT size="2">(a)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2000 (&#147;fiscal 1999&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $14.634&nbsp;million to achieve a
coverage of 1:1.
</FONT>
</DIV>

<P align="center"><FONT size="2">2
</FONT>
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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="left">
<FONT size="2">(b)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2001 (&#147;fiscal 2000&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $29.689&nbsp;million to achieve a
coverage of 1:1.
</FONT>

<P align="left">
<FONT size="2">(c)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2002 (&#147;fiscal 2001&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $18.378&nbsp;million to achieve a
coverage of 1:1.
</FONT>

<P align="left">
<FONT size="2">(d)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2004 (&#147;fiscal 2003&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $71.744&nbsp;million to achieve a
coverage of 1:1.
</FONT>

<P align="left">
<FONT size="2">(e)&nbsp;Due to our loss for the three months
ended April&nbsp;30, 2004, the ratio coverage was less than 1:1.
We would have needed to generate additional earnings of
$9.627&nbsp;million to achieve a coverage of 1:1.
</FONT>
</DIV>

<P align="center"><FONT size="2">3
</FONT>

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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="center">
<B><FONT size="2">THE COMMON STOCK OFFERING</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Issuer
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Alloy, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Securities Offered
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">1,250,001&nbsp;shares of our common stock, par
    value $0.01&nbsp;per share.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Nasdaq National Market Symbol for our Common Stock
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#147;ALOY&#148;
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">THE DEBENTURE OFFERING</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Issuer
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Alloy, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Securities Offered
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">$47,100,000 aggregate principal amount of our
    5.375%&nbsp;Convertible Senior Debentures due 2023.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Maturity Date
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">August&nbsp;1, 2023 unless earlier redeemed,
    repurchased or converted.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Ranking
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The debentures are our senior unsecured
    obligations and rank equal in right of payment with all of our
    existing and future senior unsecured indebtedness.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Interest Payment Dates
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">February 1 and August&nbsp;1, beginning
    February&nbsp;1, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Interest Rate
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">5.375%&nbsp;per annum.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Conversion Right
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Each Holder may convert all or any part of that
    holder&#146;s debentures prior to the close of business on such
    debenture&#146;s stated maturity date under any of the following
    circumstances:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#149;&nbsp;during any fiscal quarter if the
    closing sale price per share of our common stock for a period of
    at least 20&nbsp;consecutive trading days during the
    30&nbsp;consecutive trading day period ending on the last day of
    the preceding fiscal quarter is more than 110% of the conversion
    price in effect on that thirtieth day;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#149;&nbsp;on or before August&nbsp;1, 2018,
    during the five business-day period following any
    10&nbsp;consecutive trading-day period in which the daily
    average trading price for the debentures for such ten-day period
    was less than 98% of the average conversion value (as described
    in this offering memorandum) for the debentures during that
    period;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#149;&nbsp;upon the occurrence of specified
    corporate transactions described below under &#147;Description
    of the Debentures&nbsp;&#151; Conversion Rights;&#148;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#149;&nbsp;if we have called the debentures for
    redemption.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The conversion rate will initially equal
    119.4030&nbsp;shares of our common stock per $1,000 principal
    amount of debentures. This represents an initial conversion
    price of $8.375&nbsp;per share of common stock. The conversion
    rate (and the conversion price) may be adjusted for certain
    reasons, but will not be adjusted for accrued interest, if any,
    upon any conversion. Upon conversion, holders will not receive
    any cash payment representing accrued interest. Instead, accrued
    interest will be deemed paid by the common stock received by the
    holders on conversion. See &#147;Description of the
    Debentures&nbsp;&#151; Conversion Rights.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Sinking Fund
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">None.
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">4
</FONT>
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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Optional Redemption
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We may not redeem the debentures prior to
    August&nbsp;1, 2008. Thereafter, we may redeem the debentures,
    in whole or in part, at the redemption prices specified
    elsewhere in this prospectus. See &#147;Description of the
    Debentures&nbsp;&#151; Optional Redemption.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Optional Repurchase Right of Holders
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">A Holder may require us to repurchase for cash
    all or a portion of that holder&#146;s debentures on each of
    August&nbsp;1, 2008, 2013 and 2018 at a repurchase price equal
    to 100% of the principal amount of such holder&#146;s debentures
    plus any accrued and unpaid interest to, but excluding, the date
    of repurchase. See &#147;Description of the
    Debentures&nbsp;&#151; Repurchase at Option of
    Holders&nbsp;&#151; Optional Put.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Change of Control Repurchase Right of Holders
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">A Holder may require us to repurchase for cash
    all or a portion of that holder&#146;s debentures upon a change
    of control, in certain circumstances and subject to certain
    conditions. In such case, we will pay a repurchase price equal
    to 100% of the principal amount of the debentures plus accrued
    and unpaid interest to, but excluding, the repurchase date. See
    &#147;Description of the Debentures&nbsp;&#151; Repurchase at
    Option of Holders&nbsp;&#151; Change of Control Put.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Form, Denomination and Registration
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The debentures were issued in book-entry form and
    are represented by one or more permanent global certificates
    deposited with a custodian for, and registered in the name of, a
    nominee of the Depository Trust Company, or DTC, in New York,
    New York. Beneficial interests in any such securities are shown
    on, and transfers will be effected only through, records
    maintained by DTC and its direct and indirect participants.
    Except in limited circumstances, no such interest may be
    exchanged for certificated securities. &#147;Description of the
    Debentures&nbsp;&#151; Book-Entry Delivery and Settlement.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Registration Rights
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We have filed the registration statement of which
    this prospectus is a part in satisfaction of an obligation to do
    so under a registration rights agreement between us and the
    initial purchasers of the debentures. We have agreed under the
    registration rights agreement to keep the shelf registration
    statement, of which this prospectus is a part, effective until
    the earlier of:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#149;&nbsp;two years after the last date of
    original issuance of any of the debentures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#149;&nbsp;the date when the holders of the
    debentures and the common stock issuable upon conversion of the
    debentures are able to sell all these securities immediately
    pursuant to Rule&nbsp;144(k) under the Securities Act;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#149;&nbsp;the date when all of the debentures
    and the common stock into which the debentures are convertible
    which are owned by purchasers who have completed and delivered a
    selling securityholder notice and questionnaire in a prescribed
    form are registered under the shelf registration statement of
    which this prospectus is a part and sold in accordance with it.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We will be required to pay the holders additional
    amounts if we fail to register the debentures and the common
    stock issuable upon conversion of the debentures within a
    specified time period. See &#147;Description of the
    Debentures&nbsp;&#151; Registration Rights.&#148;
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">5
</FONT>

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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Listing and trading
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The debentures originally sold in private
    placement transactions are eligible for trading in the
    PORTAL<SUP>SM</SUP> Market of the National Association of
    Securities Dealers, Inc. The debentures sold using this
    prospectus, however, will no longer be eligible for trading in
    the PORTAL<SUP>SM</SUP> Market. We do not intend to list the
    debentures on any other national securities exchange or
    automated quotation system.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Nasdaq National Market Symbol for our Common Stock
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&#147;ALOY&#148;
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">6
</FONT>

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<DIV align="left">
<A name='103'></A>
</DIV>

<!-- link1 "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS THAT MAY AFFECT FUTURE
RESULTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should carefully consider and evaluate all
the information included in this prospectus, including the risks
described below, before making an investment decision. Our
business, financial condition and results of operations could be
materially adversely affected by any of these risks. The trading
price of the debentures and our common stock could decline, and
you may lose all or part of your investment. The risks described
below are not the only ones facing our company. Additional risks
not presently known to us or that we currently deem immaterial
may also impair our business operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus also contains forward-looking
statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in
this prospectus. You should carefully consider the following
risk factors, other information included in this prospectus and
information in our periodic reports filed with the Commission.
The material risks and uncertainties described below are related
to this offering. If any of the following risks actually occur,
our business, financial condition or results of operations could
be materially and adversely affected, and you may lose some or
all of your investment.
</FONT>

<P align="center">
<B><FONT size="2">Risks Related to Our Business</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We may not be able to achieve or maintain
    profitability.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since our inception in January 1996, we have
incurred significant net losses. We have reported positive net
income for only one full fiscal year&nbsp;&#151; our fiscal year
ended January&nbsp;31, 2003 (&#147;fiscal 2002&#148;). As of
April&nbsp;30, 2004, we had an accumulated deficit of
approximately $136.4&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Our business may not grow in the
    future.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since our inception, we have rapidly expanded our
business, growing from revenues of $2.0&nbsp;million for our
fiscal year ended January&nbsp;31, 1998 to $371.9&nbsp;million
for our fiscal year ended January&nbsp;31, 2004 (&#147;fiscal
2003&#148;). Our continued growth will depend to a significant
degree on our ability to increase revenues from our direct
marketing and retail businesses, 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 new media
franchises that we create or acquire. Our ability to implement
our growth strategy will also depend on a number of other
factors, many of which are or may be beyond our control
including (i)&nbsp;the continuing appeal of our media and
marketing properties to Generation&nbsp;Y consumers,
(ii)&nbsp;the continued perception by participating advertisers
and sponsors that we offer an effective marketing channel for
their products and services, (iii)&nbsp;our ability to select
products that appeal to our customer base and to market such
products effectively to our target audience, (iv)&nbsp;our
ability to attract, train and retain qualified employees and
management and (v)&nbsp;our ability to make additional strategic
acquisitions. There can be no assurance that we will be able to
implement our growth strategy successfully.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We may fail to use our Generation&nbsp;Y
    database and our expertise in marketing to Generation&nbsp;Y
    consumers successfully, and we may not be able to maintain the
    quality and size of our database</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The effective use of our Generation&nbsp;Y
consumer database and our expertise in marketing to
Generation&nbsp;Y are important components of our business. If
we fail to capitalize on these assets, our business will be less
successful. As individuals in our database age beyond
Generation&nbsp;Y, they may no longer be of significant value to
our business. We must therefore continuously obtain data on new
individuals in the Generation&nbsp;Y demographic in order to
maintain and increase the size and value of our database. If we
fail to obtain sufficient new names and information, our
business could be adversely affected. Moreover, there are other
Generation&nbsp;Y- focused media businesses that possess similar
information about some segments of Generation&nbsp;Y. We compete
for sponsorship and advertising revenues based on the
comprehensive nature of our database and our ability to analyze
and interpret the data in our database. Accordingly, if one or
more of our competitors were to create a database similar to
ours, or if a competitor were able to analyze its data more
effectively than we are able to analyze ours, our competitive
position, and therefore our business, could suffer.
</FONT>

<P align="center"><FONT size="2">7
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Our success depends largely on the value of
    our brands and if the value of our brands were to diminish, our
    business would be adversely affected.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The prominence of our Alloy, dELiA*s, CCS and
Dan&#146;s Comp catalogs and websites among our
Generation&nbsp;Y target market, and the prominence of our
Market Place Media, 360 Youth and Private Colleges&nbsp;&#38;
Universities brands and media franchises with advertisers are
key components of our business. If our consumer brands or their
associated merchandise and content lose their appeal to
Generation&nbsp;Y consumers, our business would be adversely
affected. The value of our consumer brands could also be eroded
by misjudgments in merchandise selection or by our failure to
keep our content current with the evolving preferences of our
audience. These events would likely also reduce sponsorship and
advertising sales for our merchandise and publishing businesses
and may also adversely affect our marketing and services
businesses. Moreover, we anticipate that we will continue to
increase the number of Generation&nbsp;Y 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 in this regard could damage our existing or
future brands. If any of these developments occur, our business
would suffer and we may be required to write-down the carrying
value of our goodwill.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Our revenues and income could decline due
    to general economic trends, declines in consumer spending and
    seasonality.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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
calendar 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.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We compete with other retailers for sales
    and locations in our retail store operations.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Generation&nbsp;Y girl retail apparel
industry is highly competitive, with fashion, quality, price,
location, in-store environment and service being the principal
competitive factors. We compete for retail store sales with
specialty apparel retailers, department stores and certain other
apparel retailers, such as Wet Seal, Hot Topic, bebe, Express,
Forever 21, Gap, H&#38;M, Pacific Sunwear, and Urban Outfitters.
We also compete for favorable site locations and lease terms in
shopping malls. Many of our competitors are large national
chains, which have substantially greater financial, marketing
and other resources than we do. While we believe we compete
effectively for sales and for favorable site locations and lease
terms, competition for prime locations within malls, in
particular, and within other locations is intense and we cannot
assure you that we will be able to obtain new locations or
maintain our existing locations on terms favorable to us, if at
all.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Closing stores or curtailing certain
    operations could result in significant impairments and costs to
    us.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the fourth quarter of fiscal 2003, we made a
strategic decision to close up to 17 dELiA*s retail stores (6 of
which have been closed as of June&nbsp;8, 2004) and to
discontinue production of our Girlfriends LA and Old Glory
catalogs due to their poor financial results and their limited
ability to become profitable in the future in a highly
competitive market, and so we could focus on our core direct
marketing brands. In the future, we could decide to close
dELiA*s retail stores (in addition to the 17 stores already
identified for shutdown) or curtail operations that are
producing continuing financial losses. If we do so, we would be
required to write down the carrying value of these impaired
assets to realizable value, a non-cash event that would
negatively impact our earnings and earnings per share. In
addition, if we decide to close any dELiA*s stores before the
expiration of their lease terms, we may incur payments to
landlords to terminate or &#147;buy out&#148; the remaining term
of the lease. We also may incur costs related to the employees
at such stores. These costs would negatively impact our
financial results and cash position.
</FONT>

<P align="center"><FONT size="2">8
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">dELiA*s exclusive branding activities could
    lead to increased inventory obsolescence and could harm our
    relations with other vendors.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dELiA*s promotion and sale of dELiA*s branded
products will increase our exposure to risks of inventory
obsolescence and other exposures normally associated with
manufacturers. Accordingly, if a particular style of product
does not achieve widespread consumer acceptance, we may be
required to take significant markdowns, which could have a
material adverse effect on our gross profit margin and other
operating results. Additionally, there can be no assurance that
dELiA*s promotion of its dELiA*s branded products will not
negatively impact its and our relationships with existing
vendors of branded merchandise. Moreover, dELiA*s exclusive
brand development plans may include entry into joint venture
and/or licensing/distribution arrangements, which may limit our
control of these operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We depend largely upon a single
    distribution facility.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following our decision to terminate our
relationship with New Roads and assume fulfillment activities
for our Alloy and CCS units, the distribution functions for our
Alloy, CCS and dELiA*s catalogs and all of our dELiA*s retail
stores are handled from a single, owned facility in Hanover,
Pennsylvania. Any significant interruption in the operation of
this distribution facility due to natural disasters, accidents,
system failures or other unforeseen causes could delay or impair
our ability to distribute merchandise to our customers and
retail stores, which could cause our sales to decline. This
would have a material adverse effect on our operations and
results.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We may be required to recognize impairment
    charges.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to generally accepted accounting
principles, 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&#146; fair market values with the
assets&#146; carrying values. Significant and unanticipated
changes could require a provision for impairment in a future
period that could substantially affect our reported earnings in
a period of such change. For instance, during the fourth quarter
of fiscal 2003 we completed our annual impairment review and
recorded a $56.7&nbsp;million charge to reduce the carrying
value of goodwill and an approximate $3.9&nbsp;million charge to
reduce the carrying value of indefinite-lived intangible assets.
The combined $60.6&nbsp;million charge is reflected as a
component of operating income in the accompanying consolidated
statement of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, pursuant to generally accepted
accounting principles, 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&#146;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&#146;s carrying value is not recoverable over
its estimated useful life, the asset is written down to
estimated fair value, if lower. 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 SFAS&nbsp;No.&nbsp;144, we performed an analysis of
the recoverability of certain long-lived assets during the
fourth quarter of fiscal 2003 and recorded an asset impairment
charge of $1.3&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Our strategy contemplates strategic
    acquisitions, and our inability to acquire suitable businesses
    or to manage their integration could harm our
    business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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. We could
have difficulty in assimilating personnel and operations of the
businesses we have acquired and may have similar problems with
future acquisitions. These difficulties could disrupt our
business, distract our management and employees and increase our
expenses. Furthermore, we may issue
</FONT>

<P align="center"><FONT size="2">9
</FONT>

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<DIV align="left">
<FONT size="2">additional equity securities in connection with
acquisitions, potentially on terms that could be dilutive to our
existing stockholders.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Our catalog response rates may
    decline.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Catalog response rates usually decline when we
mail additional catalog editions within the same fiscal period.
In addition, as we continue to increase the number of catalogs
distributed or mail our catalogs to a broader group of new
potential customers, we have observed that these new potential
customers respond at lower rates than existing customers have
historically responded. We cross-mail our Alloy catalogs to
dELiA*s&#146; catalog customers, and dELiA*s catalogs to Alloy
catalog customers, which may result in lower response rates for
each. Additionally, response rates for dELiA*s catalogs
historically have declined in geographic regions where it opens
new stores. If and when we open additional new dELiA*s stores,
we expect aggregate catalog response rates to decline further.
These trends in response rates have had and are likely to
continue to have a material adverse effect on our rate of sales
growth and on our profitability and could have a material
adverse effect on our business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We rely on third-party vendors for
    merchandise.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business depends on the ability of
third-party vendors and their subcontractors or suppliers to
provide us with current-season, brand-name apparel and
merchandise at competitive prices, in sufficient quantities,
manufactured in compliance with all applicable laws and of
acceptable quality. We do not have long-term contracts with any
supplier and are not likely to enter into these contracts in the
foreseeable future. In addition, many of the smaller vendors
that we use have limited resources, production capacities and
operating histories. As a result, we are subject to the
following risks, which could have a material adverse effect on
our business:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our key vendors may fail or be unable to expand
    with us;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we may lose or cease doing business with one or
    more key vendors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our current vendor terms may be changed to
    require increased payments in advance of delivery, and we may
    not be able to fund such payments through our current credit
    facility;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to procure products may be limited.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A portion of dELiA*s merchandise is sourced from
factories in the Far East and Latin America. These goods are,
and will be, subject to existing or potential duties, tariffs or
quotas that may limit the quantity of some types of goods which
may be imported into the United States from countries in those
regions. We will increasingly compete with other companies for
production facilities and import quota capacity. Sourcing more
merchandise abroad will also subject our business to a variety
of other risks generally associated with doing business abroad,
such as political instability, currency and exchange risks and
local political issues. Our future performance will be subject
to these factors, which are beyond our control. Although a
diverse domestic and international market exists for the kinds
of merchandise sourced by us, there can be no assurance that
these factors would not have a material adverse effect on our
results of operations. We believe that alternative sources of
supply would be available in the event of a supply disruption in
one or more regions of the world. However, we do not believe
that, under current circumstances, entering into committed
alternative supply arrangements is warranted, and there can be
no assurance that alternative sources would in fact be available
at any particular time.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We must effectively manage our vendors to
    minimize inventory risk and maintain our margins.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We seek to avoid maintaining high inventory
levels in an effort to limit the risk of outdated merchandise
and inventory write-downs. If we underestimate quantities
demanded by our customers and our vendors cannot restock, then
we may disappoint customers who may then turn to our
competitors. We require many of our vendors to meet minimum
restocking requirements, but if our vendors cannot meet these
requirements and we cannot find alternative vendors, we could be
forced to carry more inventory than we have in the past. Our
risk of inventory write-downs would increase if we were to hold
large inventories of merchandise that prove to be unpopular.
</FONT>

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</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Competition may adversely affect our
    business and cause our stock price to decline.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because of the growing perception that
Generation&nbsp;Y is an attractive demographic for marketers,
the markets in which we operate are competitive. Many of our
existing competitors, as well as potential new competitors in
this market, have longer operating histories, greater brand
recognition, larger customer user bases and significantly
greater financial, technical and marketing resources than we do.
These advantages allow our competitors to spend considerably
more on marketing and may allow them to use their greater
resources more effectively than we can use ours. Accordingly,
these competitors may be better able to take advantage of market
opportunities and be better able to withstand market downturns
than us. If we fail to compete effectively, our business will be
materially and adversely affected and our stock price will
decline.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We rely on third parties for some essential
    business operations, and disruptions or failures in service may
    adversely affect our ability to delivery goods and services to
    our customers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently depend on third parties for
important aspects of our business. 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.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We depend on our key personnel to operate
    our business, and we may not be able to hire enough additional
    management and other personnel to manage our
    growth.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our performance is substantially dependent on the
continued efforts of our executive officers and other key
employees. The loss of the services of any of our executive
officers or key employees could adversely affect our business.
Additionally, we must continue to attract, retain and motivate
talented management and other highly skilled employees to be
successful. We may be unable to retain our key employees or
attract, assimilate and retain other highly qualified employees
in the future.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We may be required to collect sales tax in
    our direct marketing operations.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At present, we do not collect sales or other
similar taxes in respect of direct shipments of goods to
consumers into most states. However, various states or foreign
countries may seek to impose state sales tax collection
obligations on out-of-state direct mail companies. Additionally,
dELiA*s has been named as a defendant in an action by the
Attorney General of the State of Illinois for failure to collect
sales tax on purchases made online. We can give no assurance
that other states in which dELiA*s maintains a retail store will
not take similar action, and can give no assurance regarding the
results of any such action. A successful assertion by one or
more states that we or one or more of our subsidiaries should
have collected or be collecting sales taxes on the direct sale
of our merchandise could have a material adverse effect on our
business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We could face liability from, or our
    ability to conduct business could be adversely affected by,
    government and private actions concerning personally
    identifiable data, including privacy.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our direct marketing and database dependent
businesses are subject to federal and state regulations
regarding maintenance of the confidentiality of the names and
personal information of our customers and the individuals
included in our database. If we do not comply, we could become
subject to liability. While these provisions do not currently
unduly restrict our ability to operate our business, if those
regulations become more restrictive, they could adversely affect
our business. In addition, laws or regulations that could impair
our ability to collect and use user names and other information
on our websites may adversely affect our business. For example,
COPPA currently limits our ability to collect personal
information from website visitors who may be under age&nbsp;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
</FONT>

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<FONT size="2">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.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We could face liability for information
    displayed in our print publication media or displayed on or
    accessible via our website.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may be subjected to claims for defamation,
negligence, copyright or trademark infringement or based on
other theories relating to the information we publish in any of
our print publication media and on our websites. These types of
claims have been brought, sometimes successfully, against
marketing and media companies in the past. We may be subject to
liability based on statements made and actions taken as a result
of participation in our chat rooms or as a result of materials
posted by members on bulletin boards on our websites. Based on
links we provide to third-party websites, we could also be
subjected to claims based upon online content we do not control
that is accessible from our websites.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We could face liability for breaches of
    security on the Internet.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To the extent that our activities or the
activities of third-party contractors involve the storage and
transmission of information, such as credit card numbers,
security breaches could disrupt our business, damage our
reputation and expose us to a risk of loss or litigation and
possible liability. We could be liable for claims based on
unauthorized purchases with credit card information,
impersonation or other similar fraud claims. These claims could
result in substantial costs and a diversion of our
management&#146;s attention and resources.
</FONT>

<P align="center">
<B><FONT size="2">Risks Related to the Debentures and our Common
Stock</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock and Debenture Price
    Volatility</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our stock price has been volatile historically
and may continue to be volatile. The price of our common stock,
and therefore the price of the debentures, may fluctuate
significantly, which may make it difficult for holders to resell
the debentures or the shares of our common stock when desired or
at attractive prices.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price for our common stock has been
and may continue to be volatile. For example, during the 52-week
period ended June&nbsp;25, 2004, the last reported prices of our
common stock on the Nasdaq ranged from a high of $7.95 to a low
of $4.14. We expect our stock price to be subject to
fluctuations as a result of a variety of factors, including
factors beyond our control. These factors include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">actual or anticipated variations in our quarterly
    operating results;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">announcements relating to strategic
    relationships, acquisitions or investments;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in financial estimates or other
    statements by securities analysts;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in general economic conditions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">terrorist attacks, and the effects of
    war;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in the economic performance and/or market
    valuations of other companies in our industry.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because of this volatility, we may fail to meet
the expectations of our stockholders or of securities analysts
at some time in the future, and the trading prices of our
securities could decline as a result. In addition, the stock
market has experienced significant price and volume fluctuations
that have affected the trading prices of equity securities.
These fluctuations have often been unrelated or disproportionate
to the operating performance of issuing companies. Because the
debentures are convertible into shares of our common stock,
volatility or depressed prices for our common stock could have a
similar effect on the trading price of the debentures. Holders
who receive common stock upon conversion of the debentures also
will be subject to the risk of volatility and depressed prices
of our common stock.
</FONT>

<P align="center"><FONT size="2">12
</FONT>
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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">The debentures do not contain certain
    restrictive covenants, and there is limited protection in the
    event of a change of control.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture under which the debentures have
been issued do not contain restrictive covenants that would
protect you from several kinds of transactions that may
adversely affect you. In particular, the indenture does not
contain covenants that limit our ability to pay dividends or
make distributions on or redeem our capital stock or limit our
ability to incur additional indebtedness and, therefore, protect
you in the event of a highly leveraged transaction or other
similar transaction. In addition, the requirement that we offer
to repurchase the debentures upon a change of control is limited
to the transactions specified in the definition of a
&#147;change of control&#148; under &#147;Description of
Debentures&nbsp;&#151; Repurchase at Option of
Holders&nbsp;&#151; Change of Control Put.&#148; Accordingly, we
could enter into certain transactions, such as acquisitions,
refinancings or a recapitalization, that could affect our
capital structure and the value of our common stock but would
not constitute a change of control.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Our ability to repurchase the debentures
    with cash upon a change of control may be limited.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In certain circumstances involving a change of
control, you may require us to repurchase all or a portion of
your debentures to the extent set forth in the indenture. If a
change in control were to occur, we cannot assure you that, if
required, we would have sufficient cash or other financial
resources at that time or would be able to arrange financing to
pay the repurchase price of the debentures in cash. Our ability
to repurchase the debentures in that event may be limited by
law, the indenture, by the terms of our then existing debt, if
any, and agreements that we may enter into in the future which
may replace, supplement or amend our existing or future debt. If
a change in control occurs at a time when we are prohibited from
repurchasing or redeeming the debentures, we could seek the
consent of lenders to repurchase the debentures or could attempt
to refinance the borrowings that contain this prohibition. If we
do not obtain their consent or refinance these borrowings, we
could remain prohibited from repurchasing the debentures. Our
failure to repurchase the debentures would constitute an event
of default under the indenture under which we issued the
debentures, which might constitute a default under the terms of
our other indebtedness at that time, if any.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">There may not be a liquid market for the
    debentures, and you may not be able to sell your debentures at
    attractive prices or at all.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The debentures are a new issue of our securities
for which there is currently no public market. Although the
initial purchasers have advised us that they currently intend to
make a market in the debentures, they are not obligated to do so
and may discontinue their market-making activities at any time
without notice, and their market making activities will be
subject to limits imposed by the Securities Act and the
Securities Exchange Act of 1934, as amended (the &#147;Exchange
Act&#148;). In addition, although the debentures are eligible
for trading in the PORTAL market, such eligibility will cease
upon the effectiveness of the registration statement of which
this prospectus is a part. We cannot predict whether an active
trading market for the debentures will develop or will be
sustained. If an active market for the debentures fails to
develop or be sustained, the trading price of the debentures
could fall. Even if an active trading market were to develop,
the debentures could trade at prices that may be lower than the
initial offering price. The trading price of the debentures will
depend on many factors, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">prevailing interest rates and interest rate
    volatility;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the markets for similar securities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our financial condition, results of operations
    and prospects;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the publication of earnings estimates or other
    research reports and speculation in the press or investment
    community;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the market price of our common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in our industry and competition;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">general market and economic conditions.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">13
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result, we cannot assure you that you will
be able to sell the debentures at attractive prices or at all.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Although we currently have no credit
    ratings, nor do we have any current plans to seek such ratings,
    changes in our credit ratings or the financial and credit
    markets could adversely affect the market price of the
    debentures.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price of the debentures will be based
on a number of factors, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ratings, if any, with major credit rating
    agencies;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the prevailing interest rates being paid by
    companies similar to us;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the overall condition of the financial and credit
    markets.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The condition of the financial and credit markets
and prevailing interest rates have fluctuated in the past and
are likely to fluctuate in the future. Fluctuations in these
factors could have an adverse effect on the price of the
debentures. Currently, we are not rated by any of the major
credit rating agencies and we have no current plans to seek such
ratings. Even if we do obtain such ratings, however, credit
rating agencies continually revise their ratings for companies
that they follow, which would include us. The credit rating
agencies also may evaluate the companies in our industries as a
whole and may change their credit rating for us based on their
overall view of our industries. A negative change in our credit
rating, if it were to occur, could have an adverse effect on the
market price of the debentures.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">The debentures are unsecured, and therefore
    are effectively subordinated to any secured debt.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The debentures are not secured by any of our
assets or any of our subsidiaries&#146; assets. As a result, the
debentures are effectively subordinated to any secured debt we
may incur to the extent of the value of the value of the pledged
assets. In any liquidation, dissolution, bankruptcy or other
similar proceeding, the holders of our secured debt may assert
rights against the secured assets in order to receive full
payment of their debt before the assets may be used to pay the
holders of the debentures.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">The debentures are effectively subordinated
    to the debt of our subsidiaries.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our right to receive any assets of any of our
subsidiaries upon their liquidation or reorganization, and
therefore the right of the holders of the debentures to
participate in the distribution of those assets, are effectively
subordinated to the claim of that subsidiary&#146;s creditors,
including trade creditors. In addition, even if we were a
creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of
our subsidiaries and any indebtedness of our subsidiaries senior
to that held by us. Our subsidiaries have no obligation to pay
any amounts due on the debentures or to provide us with funds
for our payment obligations, whether by dividends,
distributions, loans or other payments. Furthermore, we are not
limited in or prohibited from transferring cash or other assets
to our subsidiaries from time to time.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Sales of our stock by existing stockholders
    may cause the market price of our common stock to drop
    significantly.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of June&nbsp;25, 2004, up to
11,898,762&nbsp;shares are eligible for resale under
Rule&nbsp;144(k) of the Securities Act by existing stockholders
subject, in some cases, to contractual sale limits, existing
escrow arrangements and lockup agreements. Any significant sales
of those shares, or the perception that such sales may occur,
could cause the price of our common stock to drop significantly.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">We are a defendant in several putative
    class action lawsuits and defending these actions could hurt our
    business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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. We also have been
named as a defendant in several purported securities class
action lawsuits which have been consolidated by the court. The
allegations in these latter lawsuits include, without
limitation, misrepresentation of our business and financial
condition and results of operations
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<DIV align="left">
<FONT size="2">during the period March&nbsp;16, 2001 through
January&nbsp;23, 2003. Although we recently reached a tentative
settlement of this consolidated action, we can give no assurance
that the court will approve the terms of the settlement.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, dELiA*s has been named as a
defendant in a False Claims Act action brought by the Illinois
Attorney General for its alleged failure to collect sales taxes
on direct sales to Illinois residents.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While we believe there is no merit to these
lawsuits and intend to defend them vigorously, defending against
them could result in substantial costs and a diversion of our
management&#146;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. For more information see &#147;Legal Proceedings&#148;
on page&nbsp;47 of this prospectus.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Terrorist attacks and other acts of wider
    armed conflict may have an adverse effect on the United States
    and world economies and may adversely affect our
    business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Terrorist attacks and other acts of violence or
war, such as those that took place on September&nbsp;11, 2001,
could have an adverse effect on our business, results of
operations or financial condition. There can be no assurance
that there will not be further terrorist attacks against the
United States or its businesses or interests. Attacks or armed
conflicts that directly impact the Internet or our physical
facilities could significantly affect our business and thereby
impair our ability to achieve our expected results. Further, the
adverse effects that such violent acts and threats of future
attacks could have on the United States and world economies
could similarly have a material adverse effect on our business,
results of operations and financial condition. Finally, further
terrorist acts could cause the United States to enter into a
wider armed conflict, which could further disrupt our operations
and result in a material adverse effect on our business, results
of operations and overall financial condition.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Delaware law and our organizational
    documents and stockholder rights plan may inhibit a
    takeover.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provisions of Delaware law, our Restated
Certificate of Incorporation or our bylaws 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 has 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 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.
</FONT>

<P align="center"><FONT size="2">15
</FONT>
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<DIV align="left">
<A name='104'></A>
</DIV>

<!-- link1 "YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY UNCERTAIN" -->

<P align="center">
<B><FONT size="2">YOU SHOULD NOT RELY ON FORWARD-LOOKING
STATEMENTS</FONT></B>

<DIV align="center">
<B><FONT size="2">BECAUSE THEY ARE INHERENTLY
UNCERTAIN</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus contains forward-looking
statements within the meaning of Section&nbsp;27A of the Act and
Section&nbsp;21E of the Exchange Act, particularly statements
regarding market expectations and opportunities, market share
growth and new products and service expectations and
capabilities. These forward-looking statements are just
predictions and involve risks and uncertainties such that actual
results may differ materially.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">When used in this prospectus, the words
&#147;anticipate,&#148; &#147;believe,&#148;
&#147;estimate,&#148; &#147;expect&#148; and &#147;intend&#148;
and similar expressions as they relate to us or our management
are intended to identify such forward-looking statements. Our
actual future results may differ significantly from those stated
in any forward-looking statements. These statements include
statements regarding our ability to: increase revenues, generate
multiple revenue streams, increase visitors to our Web sites and
build customer loyalty; develop our sales and marketing teams;
capitalize on our sales and marketing efforts; capitalize on our
promotions, sponsorship, advertising and other revenue
opportunities; build the Alloy, dELiA*s, CCS and Dan&#146;s Comp
brand names, as well as the brand names of our other
subsidiaries, and develop our on-line community; develop
commercial relationships with advertisers and other Web sites;
our Web sites&#146; appeal to marketers and users; meet
anticipated cash needs for working capital and capital
expenditures for the next 24&nbsp;months; enhance our
infrastructure technology, transaction-processing and automation
capabilities of our Web sites; increase the efficiency of our
supply chain and fulfillment system; expand into international
markets; expand and utilize our name database; identify
desirable products and to continue to limit our risks of our
excess inventory; continue to provide high levels of customer
service and support; manage our vendors to maintain our profit
margins; identify and integrate potential acquisitions and
investments; and contact and successfully market to the
increasing Generation&nbsp;Y audience.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of the foregoing and other factors,
we may experience material fluctuations in future operating
results on a quarterly or annual basis, which could materially
and adversely affect our business, financial condition,
operating results and stock price. We do not intend to update
any of the forward-looking statements in this report to conform
these statements to actual results, unless required by law.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In evaluating this offering, you should carefully
consider the discussion of risks and uncertainties in the
section entitled &#147;Risk Factors&#148; beginning on
page&nbsp;7 of this prospectus.
</FONT>

<DIV align="left">
<A name='124'></A>
</DIV>

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<P align="center">
<B><FONT size="2">RATIO OF EARNINGS TO FIXED CHARGES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows the ratio of earnings
to fixed charges for us and our consolidated subsidiaries for
the periods indicated.
</FONT>

<CENTER>
<TABLE width="50%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Years ended January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Three months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;(a</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;(b</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;(c</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;(d</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;(e</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These ratios have been calculated by dividing
(i)&nbsp;income before income taxes plus fixed charges (adjusted
for capitalized interest) by (ii)&nbsp;fixed charges. Fixed
charges consist of interest incurred (expensed or capitalized),
preferred stock dividends and accretion of discount and the
portion of rent expense (one-third) on our operating leases
which we believe is deemed representative of interest.
</FONT>

<P align="left">
<FONT size="2">(a)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2000 (&#147;fiscal 1999&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $14.634&nbsp;million to achieve a
coverage of 1:1.
</FONT>

<P align="left">
<FONT size="2">(b)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2001 (&#147;fiscal 2000&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $29.689&nbsp;million to achieve a
coverage of 1:1.
</FONT>

<P align="left">
<FONT size="2">(c)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2002 (&#147;fiscal 2001&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $18.378&nbsp;million to achieve a
coverage of 1:1.
</FONT>

<P align="left">
<FONT size="2">(d)&nbsp;Due to our loss for the fiscal year
ended January&nbsp;31, 2004 (&#147;fiscal 2003&#148;), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $71.744&nbsp;million to achieve a
coverage of 1:1.
</FONT>

<P align="center"><FONT size="2">16
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<FONT size="2">(e)&nbsp;Due to our loss for the three months
ended April&nbsp;30, 2004, the ratio coverage was less than 1:1.
We would have needed to generate additional earnings of
$9.627&nbsp;million to achieve a coverage of 1:1.
</FONT>

<DIV align="left">
<A name='105'></A>
</DIV>

<!-- link1 "USE OF PROCEEDS" -->

<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus relates to our debentures and/or
shares of our common stock being offered and sold for the
account of the selling securityholders described in this
prospectus. We will not receive any proceeds from the sale of
securities by the selling securityholders in this offering.
</FONT>

<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "COMMON STOCK PRICE RANGE" -->

<P align="center">
<B><FONT size="2">COMMON STOCK PRICE RANGE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our common stock is traded on the Nasdaq National
Market under the symbol &#147;ALOY.&#148; The following table
sets forth for the periods indicated the range of intraday high
and low sales prices per share for our common stock on the
Nasdaq National Market.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">High</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Low</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Fiscal 2002 (Ended January&nbsp;31,
    2003)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Fiscal 2003 (Ended January&nbsp;31,
    2004)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Fiscal 2004 (Ending January&nbsp;31,
    2005)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.83</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter (through June&nbsp;30, 2004)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We had 141 shareholders of record as of
June&nbsp;30, 2004. The pricing information has been derived
from the Nasdaq National Market. As of June&nbsp;30, 2004, the
last reported sales price for our common stock was
$6.15&nbsp;per share.
</FONT>

<DIV align="left">
<A name='107'></A>
</DIV>

<!-- link1 "DIVIDEND POLICY" -->

<P align="center">
<B><FONT size="2">DIVIDEND POLICY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our present policy is to retain earnings for the
operation and expansion of our business. We have never paid cash
dividends on our common stock and do not anticipate that we will
do so in the foreseeable future. The declaration and payment of
dividends in the future will be determined by our board of
directors and will depend on a number of factors, including our
earnings, capital requirements and overall financial condition.
</FONT>

<P align="center"><FONT size="2">17
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='108'></A>
</DIV>

<!-- link1 "SELECTED FINANCIAL DATA" -->

<P align="center">
<B><FONT size="2">SELECTED FINANCIAL DATA</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following selected financial data are derived
from our consolidated financial statements and notes thereto.
Selected financial data should be read in conjunction with our
Financial Statements and the corresponding Notes,
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and other financial
information included elsewhere in this prospectus.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="26%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands, except share and per share data)</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">STATEMENTS OF OPERATIONS DATA(1):
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net direct marketing revenues(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,952</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">76,736</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">124,052</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">167,572</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">156,821</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29,971</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,640</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Retail stores revenues(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,103</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13,641</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Sponsorship and other activities revenues(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,912</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,452</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41,570</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">131,758</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">185,024</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">39,473</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">43,566</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33,864</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">91,188</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">165,622</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">299,330</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">371,948</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">69,444</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">87,847</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cost of revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13,765</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37,757</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">68,858</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">145,148</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">189,379</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37,975</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">46,627</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">20,099</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">53,431</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">96,764</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">154,182</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">182,569</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31,469</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41,220</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Selling and marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,520</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">60,814</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">81,829</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">108,791</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">145,715</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25,379</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">36,003</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,423</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,659</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13,516</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,240</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33,970</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,958</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,116</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of goodwill and other intangible
    assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">332</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,573</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,316</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,554</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,887</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,785</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,522</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Impairment of goodwill and other indefinite-lived
    intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">60,638</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Impairment of other long-lived assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,315</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Restructuring charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,571</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">730</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">380</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">126</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">36,275</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">80,046</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">113,661</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">134,156</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">250,255</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">32,502</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">49,767</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">(Loss) income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(16,176</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(26,615</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(16,897</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">20,026</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(67,686</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Interest and other income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,307</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,119</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">935</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,700</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">287</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(686</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Realized (loss) gain on sale of marketable
    securities and write-off of investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,193</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">658</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">97</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">296</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,279</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(14,869</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(29,689</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23,295</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(9,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,745</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Preferred stock dividends and accretion of
    discount
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,013</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,944</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">453</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">394</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net (loss) income attributable to common
    stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(14,882</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(29,689</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(25,358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">21,195</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(77,159</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(841</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(9,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Basic net (loss) earnings attributable to common
    stockholders per common share(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.55</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Weighted average basic common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,718,318</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,460,042</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">24,967,678</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">38,436,256</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41,175,046</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,149,100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42,457,030</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Diluted net (loss) earnings attributable to
    common stockholders per common share(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.55</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Weighted average diluted common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,718,318</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,460,042</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">24,967,678</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,071,412</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41,175,046</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,149,100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42,457,030</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">See Note&nbsp;3 to the consolidated financial
    statements for a description of the effect of our acquisitions
    on the comparability of our selected financial information.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">18
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">See Note&nbsp;19 to the consolidated financial
    statements for financial data by reportable segment. In 2002, we
    changed the composition of our reportable segments. As a result,
    the amounts in the 2000 and 2001 segment disclosures have been
    restated to conform to the 2002 composition of reportable
    segments.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">See Note&nbsp;11 to the consolidated financial
    statements for a description of the beneficial conversion
    features of our Series&nbsp;A and Series&nbsp;B Convertible
    Preferred Stock. The net loss attributable to common
    stockholders reflects the intrinsic value of the realization of
    a contingent beneficial conversion feature of preferred stock
    issued.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">See Note&nbsp;16 to the consolidated financial
    statements for an explanation of the determination of the number
    of common shares used in computing the amount of basic and
    diluted net loss per common share and net loss attributable to
    common stockholders per common share.
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">BALANCE SHEET DATA:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,702</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Working capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,292</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,668</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">310,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">434,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">445,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt and capital lease obligation, less
    current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible redeemable preferred stock, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,550</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,434</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Convertible Debentures Due 2023
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">249,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">345,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">281,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">19
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='109'></A>
</DIV>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<P align="center">
<B><FONT size="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION</FONT></B>

<DIV align="center">
<B><FONT size="2">AND RESULTS OF OPERATIONS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following discussion of our financial
condition and results of operation should be read in conjunction
with the consolidated financial statements and the related Notes
included elsewhere in this prospectus. Descriptions of all
documents incorporated included as exhibits hereto are qualified
in their entirety by reference to the full text of such
documents so 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 &#147;Risk
Factors That May Affect Future Results&#148; and elsewhere in
this prospectus.
</FONT>

<P align="left">
<B><FONT size="2">Executive Summary and Outlook</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a media, marketing services, direct
marketing and retail company targeting Generation&nbsp;Y, the
approximately 60&nbsp;million boys and girls in the United
States between the ages of 10 and 24. Our business integrates
direct mail catalogs, retail stores, print media, display media
boards, websites, on-campus marketing programs and promotional
events, and features a portfolio of brands that are well known
among Generation&nbsp;Y consumers and advertisers. We reach a
significant portion of Generation&nbsp;Y consumers through our
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, we are
able to offer advertisers targeted access to the youth market.
We sell third-party branded and private label products in key
Generation&nbsp;Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, our assets have enabled us to build a
comprehensive database that includes information about
approximately 27&nbsp;million Generation&nbsp;Y consumers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We generate revenue from three principal
sources&nbsp;&#151; direct marketing, retail stores, and
sponsorship and other activities. From our catalogs and
websites, we sell branded products in key Generation&nbsp;Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Our dELiA*s retail
stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. We
generate sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach
Generation&nbsp;Y. Advertisers can reach Generation&nbsp;Y
through integrated marketing programs that include our catalogs,
books, websites, and display media boards, as well as through
promotional events, product sampling, college and high school
newspaper advertising, customer acquisition programs and other
marketing services that we provide.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first quarter of fiscal 2004, we made
substantial progress in building a teen-focused merchandising
business with a strong consumer connection through targeted
direct marketing activities, complemented by a retail store
presence. We continued to wind down our Girlfriends LA and Old
Glory catalog businesses, leaving us with dELiA*s and Alloy
focused on the teen girl market and CCS and Dan&#146;s Comp
focused on the teen boy market. We have re-located the
fulfillment and call center activities for the Alloy and CCS
catalogs from a third party to efficient Company-owned
facilities. A number of key management changes and additions
have been made in strategic areas to establish the creative,
buying and planning teams necessary to execute the successful
selection and presentation of youth-focused merchandise to gain
target consumer acceptance. Since our acquisition of dELiA*s in
September 2003, we have closed six dELiA*s retail stores as of
June&nbsp;8, 2004 and continue to evaluate the remaining
underperforming locations to rationalize the store portfolio and
drive improved financial performance in our retail stores
segment. We continue to believe that the synergies we expect to
result from combining our direct marketing operations with those
of dELiA*s, leveraging our combined scale, selling across our
combined databases while controlling overall catalog
circulation, and consolidating fulfillment operations in
dELiA*s&#146; Hanover, Pennsylvania warehouse should begin to be
demonstrated in the second half of fiscal 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We continue to review expansion of our
sponsorship and other businesses. In March of 2004 we acquired
InSite Advertising, Inc. a national out-of-home media company,
to further extend our marketing reach to the 18-34&nbsp;year old
demographic. In addition, we plan to remain focused in our
previously announced efforts to separate our sponsorship and
merchandising businesses at an opportune time in the foreseeable
future.
</FONT>

<P align="center"><FONT size="2">20
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Critical Accounting Policies and
Estimates</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations
(&#147;MD&#38;A&#148;) discusses, among other things, our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate
our estimates and judgments, including those related to product
returns, bad debts, inventories, investments, intangible assets,
income taxes, and contingencies and litigation. We base our
estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2001, the SEC requested that all
registrants list their three to five most &#147;critical
accounting policies&#148; in MD&#38;A. The SEC indicated that a
&#147;critical accounting policy&#148; is one that is both
important to the portrayal of a company&#146;s financial
condition and results and requires management&#146;s most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. Our significant accounting policies are
more fully described in Note&nbsp;2 to our consolidated
financial statements. We believe, however, the following
critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of
our consolidated financial statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue Recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Direct marketing revenues are recognized at the
time products are shipped to customers, net of any promotional
price discounts and an allowance for sales returns. The
allowance for sales returns is estimated based upon our return
policy, historical experience and evaluation of current sales
and returns trends. Merchandise revenues also include shipping
and handling billed to customers. Shipping and handling costs
are reflected in Selling and Marketing expenses in the
accompanying consolidated statements of operations, and
approximated $11.8&nbsp;million, $14.7&nbsp;million and
$12.9&nbsp;million for fiscal 2001, fiscal 2002 and fiscal 2003,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Retail store revenues are recognized at the point
of sale, net of any promotional price discounts and an allowance
for sales returns. The allowance for sales returns is estimated
based upon our return policy, historical experience and
evaluation of current sales and returns trends.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sponsorship revenues consist primarily of
advertising provided for third parties in our media properties
or via marketing events or programs we execute on the
advertiser&#146;s behalf. Revenue under these arrangements is
recognized, net of the commissions and agency fees, when the
underlying advertisement is published, broadcasted 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 &#147;impression&#148; or based upon the
provision of contracted services in connection with the
marketing event or program. In-catalog print advertising
revenues are recognized as earned pro rata on a monthly basis
over the estimated economic life of the catalog. Billings in
advance of advertising delivery are deferred until earned.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other revenues consist of book
development/publishing revenue and other service contracts.
Publishing revenues are recognized upon publication of each
property. Service revenues are recognized as the contracted
services are rendered. In our advertising placement activities,
an analysis of our pricing and collection risk, among other
tests, is made to determine whether revenue is reported on a
gross or net basis.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Catalog Costs</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Catalog costs consist of catalog production and
mailing costs. Catalog costs are capitalized and charged to
expense over the expected future revenue stream, which is
principally three to four months from the date the catalogs are
mailed.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An estimate of the future sales dollars to be
generated from each individual catalog drop is used in our
catalog costs policy. The estimate of future sales is calculated
for each catalog drop using historical trends for
</FONT>

<P align="center"><FONT size="2">21
</FONT>

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<DIV align="left">
<FONT size="2">similar catalog drops mailed in prior periods as
well as the overall current sales trend for the catalog brand.
This estimate is compared with the actual sales
generated-to-date for the catalog drop to determine the
percentage of total catalog costs to be classified as prepaid on
our consolidated balance sheets. Prepaid Catalog Costs on the
consolidated balance sheets and Selling and Marketing Expenses
on the consolidated statements of operations and comprehensive
(loss) income are affected by these estimates.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Inventories</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Inventories are stated at the lower of cost or
market value. Cost is principally determined by the first-in,
first-out method. We record adjustments to the value of
inventory based upon our forecasted plans to sell our
inventories. The physical condition (e.g., age and quality) of
the inventories is also considered in establishing its
valuation. These adjustments are estimates, which could vary
significantly, either favorably or unfavorably, from the amounts
that we may ultimately realize upon the disposition of
inventories if future economic conditions, trends, or
competitive conditions differ from our estimates and
expectations. These estimates affect the balance of Inventory on
our consolidated balance sheets and Cost of Goods Sold on our
consolidated statements of operations and comprehensive (loss)
income.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Allowance for Doubtful
    Accounts</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A portion of our accounts receivable will not be
collected due to customer credit issues and bankruptcies. We
provide reserves for these situations based on the evaluation of
the aging of our accounts receivable portfolio and a
customer-by-customer analysis of our high risk customers. Our
reserves contemplate our historical write-offs on receivables,
specific customer situations, and the economic environments in
which we operate. Estimating an allowance for doubtful accounts
requires significant management judgment and is dependent upon
the overall economic environment and our customer viability.
These estimates affect the balance of Accounts Receivable on our
consolidated balance sheets and Selling and Marketing Expenses
on our consolidated statements of operations and comprehensive
(loss) income.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill and Intangible
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill, which represents the excess of purchase
price over the fair value of net assets acquired, was being
amortized on a straight-line basis over the expected future
periods to be benefited, ranging from three to five years.
Effective February&nbsp;1, 2002, we adopted Statement of
Financial Accounting Standards (&#147;SFAS&#148;)
SFAS&nbsp;No.&nbsp;142, which eliminates amortization of
goodwill and intangible assets deemed to have indefinite lives,
and requires these assets to be subject to annual impairments
tests. Intangible assets consist of trademarks, mailing lists,
customer relationships, noncompetition agreements, websites and
marketing rights acquired in connection with our business
acquisitions. Trademarks currently have indefinite lives;
however, the other identified intangible assets are amortized
over their expected benefit periods, ranging from two to eight
years.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Impairment of Goodwill and Other
    Indefinite-Lived Intangible Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill impairment is determined using a
two-step process. The first step of the goodwill impairment test
is designed to identify potential impairment by comparing the
fair value of a reporting unit (generally, our reportable
segments) with its net book value (or carrying amount),
including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment
test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test
compares the implied fair value of the reporting unit&#146;s
goodwill with the carrying amount of that goodwill. If the
carrying amount of the reporting unit&#146;s goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the
fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in
a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit. The
impairment test for other indefinite-lived intangible assets
consists of a comparison of the fair value of the
</FONT>

<P align="center"><FONT size="2">22
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">intangible asset with its carrying value. If the
carrying value of the intangible asset exceeds its fair value,
an impairment loss is recognized in an amount equal to that
excess.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. Similarly, estimates and assumptions
are used in determining the fair value of other intangible
assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and
also the magnitude of any such charge. To assist in the process
of determining goodwill impairment, we obtain appraisals from an
independent valuation firm. In addition to the use of an
independent valuation firm, we perform internal valuation
analyses and consider other market information that is publicly
available. Estimates of fair value are primarily determined
using discounted cash flows and market comparisons. These
approaches use significant estimates and assumptions including
projected future cash flows (including timing), discount rates
reflecting the risk inherent in future cash flows, perpetual
growth rates, determination of appropriate market comparables
and the determination of whether a premium or discount should be
applied to comparables.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Using these methods, during the fourth quarter of
fiscal 2003 we completed our annual impairment review and
recorded a $56.7&nbsp;million charge to reduce the carrying
value of goodwill in our direct marketing segment and an
approximate $1.9&nbsp;million and $2.0&nbsp;million charge to
reduce the carrying value of other indefinite-lived intangible
assets in our direct marketing segment and sponsorship and other
segment, respectively. The combined $60.6&nbsp;million charge is
reflected as a component of operating income in the accompanying
consolidated statement of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Considerable management judgment is necessary to
estimate the fair value of our reporting units which may be
impacted by future actions taken by us and our competitors and
the economic environment in which we operate. These estimates
affect the balance of Goodwill and Intangible and Other Assets
on our consolidated balance sheets and Operating Expenses on our
consolidated statements of operations and comprehensive (loss)
income.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Impairment of Long-Lived
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with SFAS&nbsp;No.&nbsp;144,
&#147;Accounting for the Impairment or Disposal of Long-Lived
Assets&#148; (&#147;SFAS&nbsp;No.&nbsp;144&#148;), which the
Company adopted in 2002, long-lived assets, such as property,
plant, and equipment, 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. Assets to be
disposed of would be separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets
and liabilities of a disposed group classified as held for sale
would be presented separately in the appropriate asset and
liability sections of the balance sheet.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to SFAS&nbsp;No.&nbsp;144, the Company
performed an analysis of the recoverability of certain
long-lived assets during the fourth quarter of fiscal 2003 and
recorded an asset impairment charge of $1.3&nbsp;million in the
direct marketing segment. We determined that the carrying
amounts of the non-competition agreement of $144,000 related to
Old Glory, the website of $31,000 related to Old Glory and the
non-competition agreement of $23,000 related to Girlfriends LA
were impaired as we plan to discontinue marketing our Old Glory
and Girlfriends LA brands. Other assets of these businesses,
namely mailing lists, were not deemed impaired as they are and
can be used by other parts of our direct marketing segment. In
addition, the future cash flows related to Dan&#146;s Comp could
not fully support the carrying amount of Dan&#146;s Comp&#146;s
long-lived assets. As a result, an impairment charge related to
the non-competition agreement of $209,000, property and
equipment of $159,000, and mailing list of $749,000 was recorded.
</FONT>

<P align="center"><FONT size="2">23
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Results of Operations and Financial Condition
for Fiscal Years 2001, 2002 and 2003.</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Consolidated Results of
    Operations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth our statement of
operations data for the periods indicated, reflected as a
percentage of revenues:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">STATEMENTS OF OPERATIONS DATA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net direct marketing revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling and marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of goodwill and other intangible
    assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill and other indefinite-lived
    intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of long-lived assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Loss) income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Realized gain (loss) on available-for-sale
    marketable securities and write-off of investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividends and accretion of
    discount
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income attributable to common
    stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Segment Results of Operations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The tables below present our revenues and
operating income (loss) by segment for each of fiscal 2001,
fiscal 2002, and fiscal 2003.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For Years Ended January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Percent Change</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002 vs 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003 vs 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Revenue</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Revenue</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156,821</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">NM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">185,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">217</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,622</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">299,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">24
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For Years Ended January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Percent Change</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002 vs 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003 vs 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Operating (Loss) Income</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Operating (Loss) Income</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,967</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(63,296</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">NM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">NM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,574</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">NM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">493.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,852</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,292</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,074</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,897</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,686</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">NM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(438.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<P align="left">
<FONT size="2">NM-Not meaningful
</FONT>

<P align="left">
<B><FONT size="2">Fiscal 2003 Compared with Fiscal
2002</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Total Revenues.</FONT></I><FONT size="2">
Total revenues increased 24.3% to $371.9&nbsp;million for fiscal
2003 from $299.3&nbsp;million for fiscal 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Direct Marketing
Revenues.</FONT></I><FONT size="2"> Direct marketing revenues
decreased 6.4% to $156.8&nbsp;million from $167.6&nbsp;million
in fiscal 2002. Revenue from our Alloy, Girlfriends LA, CCS, and
Dan&#146;s Comp brands decreased as a result of both a planned
decline in catalog circulation following our acquisition of
dELiA*s and lower customer response rates to the catalogs we did
mail during the second half of the fiscal year due to less
desirable merchandise assortments. We acquired dELiA*s in
September 2003 primarily to improve catalog circulation
productivity by overlaying similar name databases; add a strong,
teen-focused brand; and capitalize on cost-saving opportunities
in combining the businesses. dELiA*s direct marketing revenue
from September 2003 through the end of fiscal 2003 totaled
$29.4&nbsp;million, which partially offset the decreased sales
in our other brands.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Retail Stores
Revenues.</FONT></I><FONT size="2"> Retail stores revenues
totaled $30.1&nbsp;million for fiscal 2003 compared with none
for fiscal 2002. The retail stores revenue was generated solely
from dELiA*s 61 retail stores. We owned no retail stores prior
to our acquisition of dELiA*s in September 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Sponsorship and Other Activities
Revenues.</FONT></I><FONT size="2"> Sponsorship and other
activities revenues increased 40.4% to $185.0&nbsp;million in
fiscal 2003 from $131.8&nbsp;million in fiscal 2002. The
increase was the result of three main factors:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the addition of On Campus Marketing&#146;s
    (&#147;OCM&#148;) revenue from the date of its acquisition in
    May 2003;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the twelve months of revenue from Market Place
    Media (&#147;MPM&#148;) during fiscal 2003 compared with the
    five and one half months of revenue from MPM during fiscal
    2002;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our expanding client base and our strengthened
    client relationships within our promotional marketing business
    units.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cost of Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of revenues consists of the cost of the
merchandise sold plus the freight cost to deliver the
merchandise to the warehouse and retail stores, together with
the direct costs attributable to the sponsorship and advertising
programs we provide and the marketing publications we produce.
Our cost of revenues increased 30.5% in fiscal 2003 to
$189.4&nbsp;million from $145.1&nbsp;million in fiscal 2002. The
increase in cost of revenues was due primarily to the additional
costs of goods sold by OCM (acquired in May 2003), a full
year&#146;s cost of revenues for our MPM ad placement business,
and the cost of merchandise sold by dELiA*s (acquired in
September 2003), offset partially by decreases in cost of goods
sold related to the revenue declines of the Alloy, Girlfriends
LA, CCS and Dan&#146;s Comp direct marketing brands.
</FONT>

<P align="center"><FONT size="2">25
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our gross profit as a percentage of total
revenues decreased to 49.1% in fiscal 2003 from 51.5% in fiscal
2002. This decrease was due primarily to the lower gross margin
profile of our sponsorship and other revenues as an increased
proportion of these revenues were generated from our lower gross
margin advertising placement and event and field marketing
activities. In addition, gross margins within our sponsorship
business units declined due to more competitive market
conditions in fiscal 2003, which required us to reduce our
margins to win sponsorship business contracts. Gross profit
percentages may fluctuate significantly in future periods due
primarily to the changing revenue contributions of our different
sponsorship activities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Total Operating Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling and
Marketing.</FONT></I><FONT size="2"> Selling and marketing
expenses consist primarily of our catalog production and mailing
costs, our call centers and fulfillment operations expenses,
dELiA*s retail store costs, freight costs to deliver goods to
our merchandise customers, compensation of our sales and
marketing personnel, marketing costs, and information technology
expenses related to the maintenance and marketing of our
websites and support for our advertising sales activities. These
selling and marketing expenses increased 33.9% to
$145.7&nbsp;million for fiscal 2003 from $108.8&nbsp;million for
fiscal 2002 primarily due to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the inclusion of dELiA*s selling and marketing
    expenses since September 2003;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the inclusion of OCM&#146;s selling and marketing
    expenses since its acquisition in May 2003;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increased information technology spending to
    support our expanded advertising sales force;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increased occupancy expenses of our expanded
    advertising sales and execution staff;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the hiring of additional sales and marketing
    personnel.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a percentage of total revenues, our selling
and marketing expenses increased to 39.2% for fiscal 2003 from
36.3% for fiscal 2002 due to reduced catalog productivity
(revenues per book circulated) and the high selling and
marketing expenses as a percentage of revenues of dELiA*s
unprofitable retail store operations. Fulfillment expenses,
including credit card processing charges, decreased 10.1% to
$26.3&nbsp;million for fiscal 2003 from $29.5&nbsp;million for
fiscal 2002 due to decreased revenues in the direct marketing
segment and dELiA*s more efficient in-house fulfillment
operations. We expect fulfillment expenses to decrease further
in fiscal 2004 as we transition all of our fulfillment
operations for our Alloy and CCS units from New Roads to our
dELiA*s in-house fulfillment operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a percentage of net direct marketing revenues,
fulfillment expenses decreased to 15.4% in fiscal 2003 from
17.6% in fiscal 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General and
Administrative.</FONT></I><FONT size="2"> General and
administrative expenses consist primarily of salaries and
related costs for our executive, administrative, finance and
management personnel, as well as support services and
professional service fees. These expenses increased 97.0% to
$34.0&nbsp;million in fiscal 2003 from $17.2&nbsp;million for
fiscal 2002. The increase in general and administrative expenses
primarily was driven by:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the addition of OCM&#146;s expenses since the
    acquisition date;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the inclusion of dELiA*s expenses since
    September&nbsp;4, 2003, the acquisition date;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an increase in compensation expense for
    additional personnel to handle our growing business;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the costs of our Audit Committee&#146;s
    investigation into the alleged accounting
    irregularities;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increased expenses associated with growing a
    public company such as professional fees, insurance premiums,
    occupancy costs due to office expansions, and telecommunications
    costs.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our general and administrative expenses increased
to 9.1% as a percentage of total revenues for fiscal 2003 from
5.8% for fiscal 2002, due primarily to the addition of high
general and administrative expenses as a percentage of revenues
in the acquired dELiA*s business. We expect general and
administrative expenses to grow as we hire additional personnel
and incur additional expenses related to the growth of our
business and our operations.
</FONT>

<P align="center"><FONT size="2">26
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Amortization of Intangible
Assets.</FONT></I><FONT size="2"> Amortization of intangible
assets was approximately $7.9&nbsp;million for fiscal 2003 as
compared with $5.6&nbsp;million for fiscal 2002. In fiscal 2002,
we adopted SFAS&nbsp;No.&nbsp;142, which eliminates the
amortization of goodwill and indefinite-lived intangible assets
and requires an annual impairment review of such assets. The
increase in intangible asset amortization is due to our
acquisition activities during the last twelve months and the
associated allocation of purchase price to amortizable
identified intangible assets. All of our acquisitions have been
accounted for under the purchase method of accounting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Goodwill and Other Indefinite-Lived Intangible
Asset Impairment.</FONT></I><FONT size="2"> Due to the decline
in catalog response rates, operating profit and cash flows were
lower than expected during fiscal 2003. Based on that trend, as
well as the addition and integration of dELiA*s, the projected
cash flows could not support the goodwill within the direct
marketing reporting unit. During the fourth quarter of fiscal
2003, a goodwill impairment charge of $56.7&nbsp;million was
recognized since the carrying amount of the reporting
unit&#146;s goodwill exceeded the implied fair value of the
goodwill. Also, during the fourth quarter of fiscal 2003, an
impairment charge for trademarks of $1.9&nbsp;million and
$2.0&nbsp;million was recognized in the direct marketing segment
and the sponsorship and other segment, respectively. In the
direct marketing segment, the trademark impairment charge of
$1.9&nbsp;million was recognized since the carrying value of the
reporting unit&#146;s trademarks was greater than the fair value
of the reporting unit&#146;s trademarks. In the sponsorship and
other segment, an impairment charge of $1.0&nbsp;million was
recorded since the carrying value of the reporting unit&#146;s
trademarks was greater than the fair value of the reporting
units trademarks and an additional $1.0 impairment charge was
recognized due to the discontinued use of certain trademarks.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Impairment of Other Long-Lived
Assets.</FONT></I><FONT size="2"> As a result of triggering
events such as the planned discontinuance of the Old Glory and
Girlfriends LA catalog brands, we performed an analysis pursuant
to SFAS&nbsp;No.&nbsp;144 of the recoverability of long-lived
assets in the direct marketing segment during the fourth quarter
of fiscal 2003. As a result of this analysis, we recorded an
asset impairment charge of $1.3&nbsp;million in the direct
marketing segment. Alloy determined that the carrying amounts of
the non-competition agreement of $144,000 related to Old Glory,
the website of $31,000 related to Old Glory and the
non-competition agreement of $23,000 related to Girlfriends LA
were impaired as we plan to discontinue marketing our Old Glory
and Girlfriends LA brands. In addition, the future cash flows
related to Dan&#146;s Comp could not fully support the carrying
amount of Dan&#146;s Comp&#146;s long-lived assets. As a result,
an impairment charge related to the non-competition agreement of
$209,000, property and equipment of $159,000, and mailing list
of $749,000 was recorded.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Restructuring
Charges.</FONT></I><FONT size="2"> During the first quarter of
fiscal 2003, we made the strategic decision to outsource
substantially all of our fulfillment activities for our
Girlfriends LA unit to New Roads. We determined that we would
not be able to sublease our existing fulfillment facilities due
to real estate market conditions. As a result, and in accordance
with SFAS&nbsp;No.&nbsp;146 and SFAS&nbsp;No.&nbsp;144, we
recognized a first quarter charge of approximately $380,000 in
our direct marketing segment, representing the future
contractual lease payments, severance and personnel costs, and
the write-off of related leasehold improvements. During the
third quarter of fiscal 2003, we made the strategic decision to
transfer substantially all of our call center and fulfillment
activities for our Alloy and CCS units from New Roads, a third
party service provider, to our recently acquired distribution
center in Hanover, Pennsylvania and call center in Westerville,
Ohio. As a result, we were required to pay New Roads an exit
fee. We recognized a charge of approximately $351,000 in the
third quarter of 2003 in our direct marketing segment,
representing the contractual exit payment. During the fourth
quarter of fiscal 2002, we wrote off an abandoned facility lease
and equipment no longer required in our business operations when
we determined that we could not exit the lease or sublease the
space. As a result, we took a fourth quarter charge of
$2.6&nbsp;million. We will continue to review our operations to
determine the necessity of our facilities, equipment and
personnel.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income (Loss) from Operations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Total Income (Loss) from
Operations.</FONT></I><FONT size="2"> Our loss from operations
was $67.7&nbsp;million for fiscal 2003 while our income from
operations was $20.0&nbsp;million for fiscal 2002. The
transition from operating income to operating loss is primarily
due to the goodwill impairment, the incurrence of operating
losses in our direct marketing business, the loss from the
dELiA*s retail operations, increased corporate expenses, and
increased depreciation and amortization expenses.
</FONT>

<P align="center"><FONT size="2">27
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Income (Loss) from Direct Marketing
Operations.</FONT></I><FONT size="2"> Our loss from direct
marketing operations was $63.3&nbsp;million for fiscal 2003
while our income from direct marketing operations was
$3.1&nbsp;million for fiscal 2002. The transition from direct
marketing operating income to direct marketing operating loss is
primarily a result of goodwill impairment and lower revenues
resulting from reduced catalog circulation and reduced
productivity in the catalogs we did circulate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Loss from Retail Stores
Operations.</FONT></I><FONT size="2"> Our loss from retail
stores operations was $2.6&nbsp;million in fiscal 2003. The loss
was generated from the dELiA*s retail stores acquired in
September 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Income from Sponsorship and Other Activities
Operations.</FONT></I><FONT size="2"> Our income from
sponsorship and other operations decreased 13.5% to
$25.3&nbsp;million for fiscal 2003 from $29.2&nbsp;million for
fiscal 2002 due primarily to the increased amortization of
acquired intangible assets and the impairment of trademarks.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interest Income (Expense),
    Net</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In fiscal 2003, we generated interest income of
$687,000 and $2.7&nbsp;million of interest expense, primarily
related to the issuance in July and August 2003 of our
5.375%&nbsp;Convertible Senior Debentures due August&nbsp;1,
2023 (the &#147;Debentures&#148;). In fiscal 2002, we generated
interest income of $1.7&nbsp;million and had interest expense of
$1,000. The decrease in interest income resulted primarily from
lower cash and cash equivalents and available-for-sale
marketable securities balances during fiscal 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Realized Gain (Loss) on Marketable
    Securities and Write-off of Investments, Net</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net realized gains on the sales of marketable
securities were approximately $66,000 in fiscal 2003. In
addition, we wrote off $313,000 of minority investments in
private companies that either declared bankruptcy or ceased
operations. Realized gains from sales of marketable securities
in fiscal 2002 were approximately $97,000.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income Tax Benefit (Expense)</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In fiscal 2003, we recorded an income tax expense
of $5.3&nbsp;million due to our decision to establish a
valuation allowance for our net deferred tax asset of
$5.2&nbsp;million. The valuation allowance was established as a
result of increased uncertainty over the realization of the
deferred tax asset, in part as a result of the acquisition of
dELiA*s. In fiscal 2002, we received an income tax benefit of
$1.5&nbsp;million due to the release of our valuation reserve in
the fourth quarter due to the anticipated likelihood of future
profits.
</FONT>

<P align="left">
<B><FONT size="2">Fiscal 2002 Compared with Fiscal
2001</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Total Revenues.</FONT></I><FONT size="2">
Total revenues increased 80.7% to $299.3&nbsp;million for fiscal
2002 from $165.6&nbsp;million for fiscal 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Merchandise
Revenues.</FONT></I><FONT size="2">Net merchandise revenues
increased 35.1% to $167.6&nbsp;million for fiscal 2002 from
$124.1&nbsp;million for fiscal 2001. This increase was due
primarily to increased catalog circulation to our enlarged
Generation&nbsp;Y database, which grew as a result of expanded
exposure of our various catalog brands, as well as the
acquisitions of Dan&#146;s Comp in September 2001 and
Girlfriends LA in March 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Sponsorship and Other Activities
Revenues.</FONT></I><FONT size="2"> Sponsorship and other
activities revenues increased 217% to $131.8&nbsp;million in
fiscal 2002 from $41.6&nbsp;million in fiscal 2001 primarily due
to the selling efforts of our expanded advertising sales force
and the broadened range of advertising and marketing services we
were able to offer. Our sales force, client base and services
were significantly augmented by the acquisitions of Market Place
Media in July 2002 and 360 Youth and Target Marketing and
Promotions in November 2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cost of Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our cost of revenues increased 110.6% to
$145.1&nbsp;million in fiscal 2002 from $68.9&nbsp;million in
fiscal 2001. This increase was due primarily to the increase in
volume of merchandise sales to our growing customer base,
</FONT>

<P align="center"><FONT size="2">28
</FONT>

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<DIV align="left">
<FONT size="2">along with the costs associated with our
substantially enlarged newspaper advertising and field marketing
activities.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our gross profit as a percentage of total
revenues decreased to 51.5% in fiscal 2002 from 58.4% in fiscal
2001. This was due primarily to the lower gross margin profile
of our sponsorship and other revenues as we experienced
significant growth in lower margin activities such as newspaper
advertising, event and field marketing, and sampling programs.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Total Operating Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling and
Marketing.</FONT></I><FONT size="2"> Selling and marketing
expenses increased 33.0% to $108.8&nbsp;million for fiscal 2002
from $81.8&nbsp;million for fiscal 2001, due to the increased
costs incurred in marketing, selling and shipping merchandise to
our expanded database in greater volume; the hiring of
additional sales and marketing personnel; the addition of sales
staff associated with acquired media and marketing services
businesses; and increased spending on website technical
maintenance. As a percentage of total revenues, our selling and
marketing expenses decreased to 36.3% for fiscal 2002 from 49.4%
for fiscal 2001. This decrease was due primarily to more
targeted merchandise marketing to our enlarged database,
improved advertising sales force productivity and reduced
general advertising and marketing activity. Fulfillment expenses
including credit card processing charges rose 31.4% to
$29.5&nbsp;million for fiscal 2002 from $22.4&nbsp;million for
fiscal 2001 due to the increase in merchandise revenues. As a
percentage of net merchandise revenues, fulfillment expenses
decreased to 17.6% in fiscal 2002 from 18.1% in fiscal 2001 due
mainly to improved labor requirement forecasting and
productivity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General and
Administrative.</FONT></I><FONT size="2"> General and
administrative expenses increased 27.4% to $17.2&nbsp;million
for fiscal 2002 from $13.5&nbsp;million for fiscal 2001. The
increase was attributable primarily to an increase in
compensation expense for additional personnel to handle our
growing business, together with administrative costs related to
acquired companies and expenses associated with a growing public
company such as increased professional fees, insurance premiums
and public relations costs. As a percentage of total revenues,
our general and administrative expenses decreased to 5.8% for
fiscal 2002 from 8.2% for fiscal 2001 as we spread our overhead
expenses across an enlarged revenue base.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Amortization of Goodwill and Other Intangible
Assets.</FONT></I><FONT size="2"> Amortization of intangible
assets was approximately $5.6&nbsp;million for fiscal 2002 as
compared with the amortization of goodwill and other intangible
assets of $18.3&nbsp;million for fiscal 2001. These costs have
resulted from our acquisition activities, which commenced in
fiscal 1999. All of our acquisitions have been accounted for
under the purchase method of accounting. In fiscal 2002, we
adopted Statement No.&nbsp;142 which eliminates the amortization
of goodwill and indefinite-lived intangible assets and requires
an annual impairment review of such assets. Accordingly,
amortization expense decreased to $5.6&nbsp;million in fiscal
2002, as compared with $18.3&nbsp;million in fiscal 2001, as a
result of adoption of this standard.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Restructuring
Charges.</FONT></I><FONT size="2"> During the fourth quarter of
fiscal 2002, we wrote off an abandoned facility lease and
equipment no longer required in our business operations when we
determined that we could not exit the lease or sublease the
space. As a result, we took a fourth quarter charge of
$2.6&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income (Loss) from Operations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Total Income (Loss) from
Operations.</FONT></I><FONT size="2"> Our income from operations
was $20.0&nbsp;million for fiscal 2002 while our loss from
operations was $16.9&nbsp;million for fiscal 2001. The
transition from operating loss to operating income reflects
greater efficiency in selling merchandise to our name database
and achieving economies of scale in selling larger advertising
and marketing services packages across a wider range of clients,
together with the elimination of goodwill amortization. The
fiscal 2001 loss from operations was due primarily to goodwill
amortization.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Merchandise Income (Loss) from
Operations.</FONT></I><FONT size="2"> Our income from
merchandise operations was $3.4&nbsp;million for fiscal 2002
while our loss from merchandise operations was
$10.0&nbsp;million for fiscal 2001. The transition from
operating loss to operating income reflects greater productivity
of catalog circulation targeting the more responsive segments of
our enlarged name database and the elimination of goodwill
amortization.
</FONT>

<P align="center"><FONT size="2">29
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Sponsorship and Other Income (Loss) from
Operations.</FONT></I><FONT size="2"> Our income from
sponsorship and other operations increased 492.0% to
$29.2&nbsp;million for fiscal 2002 from $4.9&nbsp;million for
fiscal 2001. This increase resulted from greater economies of
scale in selling a broader range of advertising and marketing
services packages across a wider range of clients, together with
the elimination of goodwill amortization.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interest Income, Net</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest income net of expense includes income
from our cash and cash equivalents and from investments and
expenses related to our financing obligations. For fiscal 2002
and fiscal 2001, we generated net interest income of
$1.8&nbsp;million and $935,000, respectively. This 92.2%
increase resulted primarily from interest earned on the cash
received in connection with private placements of our common
stock in the second half of fiscal 2001 and the follow-on public
offering of our common stock in February 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Realized Gain on Marketable Securities,
    Net</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In fiscal 2002, realized gains from sales of
marketable securities were approximately $97,000. In fiscal
2001, we unwound collars we had placed on 600,000&nbsp;shares of
Liberty Digital (LDIG)&nbsp;common stock and sold
628,000&nbsp;shares of LDIG, thereby realizing a gain of
$658,000, net of tax. The series of transactions resulted in a
realized gain from sales of marketable securities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income Tax Benefit (Expense)</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In fiscal 2002, we received an income tax benefit
of $1.5&nbsp;million due to the release of our valuation reserve
in the fourth quarter due to the anticipated likelihood of
future profits. In fiscal 2001, we were subject to income tax
expense of $296,000 due to taxable operating income generated at
the state level.
</FONT>

<P align="left">
<B><FONT size="2">Results of Operations for Fiscal Quarters
ended April&nbsp;30, 2004 and April&nbsp;30, 2003.</FONT></B>

<P align="left">
<B><FONT size="2">Three Months Ended April&nbsp;30, 2004
Compared with Three Months Ended April&nbsp;30, 2003</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Consolidated Results of
    Operations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the statement of
operations data for the periods indicated as a percentage of
revenues:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Ended April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling and marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring charge
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest and other income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income tax benefit (expense)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Segment Results of Operations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The tables below present our revenues and
operating income (loss) by segment for each of the three months
ended April&nbsp;30, 2003 and 2004 (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Change&nbsp;2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">vs 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Revenues:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">NM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Net Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating Income (Loss):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,473</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,276</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">NM</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,006</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,002</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(79.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Operating Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(727.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<P align="left">
<FONT size="2">NM&nbsp;&#151; Not meaningful
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Net Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Total Net Revenues.</FONT></I><FONT size="2">
Total net revenues increased 26.5% to $87.8&nbsp;million in the
three months ended April&nbsp;30, 2004 from $69.4&nbsp;million
in the three months ended April&nbsp;30, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Direct Marketing
Revenues.</FONT></I><FONT size="2"> Direct marketing revenues
increased 2.2% from $30.0&nbsp;million in the three months ended
April&nbsp;30, 2003 to $30.6&nbsp;million in the three months
ended April&nbsp;30, 2004. The increase in direct marketing
revenues for the first quarter of the fiscal year ending
January&nbsp;31, 2005 (&#147;fiscal 2004&#148;) versus the first
quarter of the fiscal year ended January&nbsp;31, 2004
(&#147;fiscal 2003&#148;) resulted primarily from revenues
related to our dELiA*s brand which we acquired in September
2003. dELiA*s direct marketing revenue for the first quarter of
fiscal 2004 totaled $10.2&nbsp;million, which offset the
decreased sales from our Alloy, Girlfriends LA, Old Glory, CCS,
and Dan&#146;s Comp brands. We ceased the catalog operations of
our Girlfriends LA and Old Glory brands during the first quarter
of fiscal 2004. The decrease in revenues in our Alloy, CCS and
Dan&#146;s Comp brands resulted primarily from a planned decline
in catalog circulation, together with lower sales productivity
in the Alloy title.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Retail Stores
Revenues.</FONT></I><FONT size="2"> Retail stores revenues
totaled $13.6&nbsp;million for the three months ended
April&nbsp;30, 2004. The retail revenue was generated from
dELiA*s 62 retail stores during the quarter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Sponsorship and Other
Revenues.</FONT></I><FONT size="2"> Sponsorship and other
revenues increased 10.4% from $39.5&nbsp;million in the first
quarter of fiscal 2003 to $43.6&nbsp;million in the first
quarter of fiscal 2004. The increase in sponsorship and other
revenues in the first quarter of fiscal 2004 as compared with
the first quarter of fiscal 2003 was due primarily to the
addition of revenues from the operations of OCM that we acquired
in May 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cost of Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of revenues consists of the cost of the
merchandise sold plus the freight cost to deliver the
merchandise to the warehouse and retail stores, together with
the direct costs attributable to the sponsorship and advertising
programs we provide, and the marketing publications we produce.
Our total cost of revenues increased 22.8% from
$38.0&nbsp;million in the three months ended April&nbsp;30, 2003
to $46.6&nbsp;million in the three months ended April&nbsp;30,
2004. The increase in cost of revenues in the first quarter of
fiscal 2004 as compared with the first quarter of fiscal
</FONT>

<P align="center"><FONT size="2">31
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">2003 was due primarily to the additional costs of
goods sold from OCM (acquired in May 2003) and cost of
merchandise sold from dELiA*s (acquired in September 2003),
offset partially by decreases in cost of goods sold related to
the revenue declines of the Alloy, CCS and Dan&#146;s Comp
direct marketing brands and the wind-down of our Girlfriends LA
and Old Glory brands.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our gross profit as a percentage of total
revenues increased from 45.3% in the three months ended
April&nbsp;30, 2003 to 46.9% in the three months ended
April&nbsp;30, 2004. This increase was due primarily to the
increased percentage of direct marketing and retail store
segment revenues of total revenues in the first quarter of
fiscal 2004. Gross profit percentages may fluctuate
significantly in future periods due primarily to the changing
revenue contributions of our different operating segments and
the changing revenue contributions of our different sponsorship
segment activities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Total Operating Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling and
Marketing.</FONT></I><FONT size="2"> Selling and marketing
expenses consist primarily of our catalog production and mailing
costs; our call centers and fulfillment operations expenses;
dELiA*s retail store costs; freight costs to deliver goods to
our merchandise customers; compensation of our sales and
marketing personnel; marketing costs; and information technology
expenses related to the maintenance and marketing of our
websites and support for our advertising sales activities. These
selling and marketing expenses increased from $25.4&nbsp;million
in the three months ended April&nbsp;30, 2003 to
$36.0&nbsp;million in the three months ended April&nbsp;30, 2004
due primarily to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the inclusion of dELiA*s selling and marketing
    expenses (acquired in September 2003);&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the inclusion of OCM&#146;s selling and marketing
    expenses (acquired in May 2003).
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a percentage of total revenues, our selling
and marketing expenses increased from 36.6% in the first quarter
of fiscal 2003 to 41.0% in the first quarter of fiscal 2004, due
primarily to reduced catalog overall productivity (revenues per
book circulated) and the high selling and marketing expenses as
a percentage of revenues for dELiA*s unprofitable retail store
operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">General and
Administrative.</FONT></I><FONT size="2"> General and
administrative expenses consist primarily of salaries and
related costs for our executive, administrative, finance and
management personnel, as well as support services and
professional service fees. These expenses increased from
$5.0&nbsp;million in the three months ended April&nbsp;30, 2003
to $12.1&nbsp;million in the three months ended April&nbsp;30,
2004. The increase in general and administrative expenses
primarily was driven by:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the addition of OCM&#146;s expenses;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the inclusion of dELiA*s expenses;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increased expenses associated with growing a
    public company such as professional fees, insurance premiums,
    occupancy costs due to office expansions, and telecommunications
    costs.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our general and administrative expenses as a
percentage of total revenues increased from 7.1% in the first
quarter of fiscal 2003 to 13.8% in the first quarter of fiscal
2004, due primarily to the addition of high general and
administrative expenses as a percentage of revenues in the
acquired dELiA*s business and senior management hiring in our
direct marketing and retail store segment, along with increased
professional services costs due to outstanding litigation and
increased audit fees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Amortization of Intangible
Assets.</FONT></I><FONT size="2"> Amortization of intangible
assets was approximately $1.5&nbsp;million in the three months
ended April&nbsp;30, 2004 as compared with $1.8&nbsp;million in
the three months ended April&nbsp;30, 2003. The decrease in
amortization expense resulted from certain identified intangible
assets becoming fully amortized during the fourth quarter of
fiscal 2003 and the impairment of certain identified intangible
assets during the fourth quarter of fiscal 2003, offset
partially by our acquisition activities during the last twelve
months and the associated allocation of purchase price to
identified intangible assets. All of our acquisitions have been
accounted for under the purchase method of accounting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Restructuring
Charge.</FONT></I><FONT size="2"> During the first quarter of
fiscal 2003, we made the strategic decision to outsource
substantially all of our fulfillment activities for our
Girlfriends LA unit to New Roads. We determined that we
</FONT>

<P align="center"><FONT size="2">32
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">would not be able to sublease our existing
fulfillment facilities due to the real estate market conditions.
As a result, and in accordance with SFAS&nbsp;No.&nbsp;146 and
SFAS&nbsp;No.&nbsp;144, we recognized a first quarter charge of
approximately $380,000 in our direct marketing segment,
representing the future contractual lease payments, severance
and personnel costs, and the write-off of related leasehold
improvements. During the first quarter of fiscal 2004, we made
the decision to relocate the MPM business from
Santa&nbsp;Barbara, California to our principal office in New
York, New York and terminated several MPM employees. As a
result, and in accordance with SFAS&nbsp;146, we recognized a
restructuring charge in the sponsorship and other segment of
approximately $126,000 in the first quarter of fiscal 2004. The
$126,000 restructuring charge is comprised of severance costs.
The MPM business is expected to relocate to the New York office
by the end of the second quarter of fiscal 2004. Additional
charges representing additional severance costs, future
contractual lease payments and the write-off of related
leasehold improvements will be recognized during the second
quarter of fiscal 2004 when the MPM business is physically
relocated from Santa&nbsp;Barbara to New York. We will continue
to review our operations to determine the necessity of our
facilities, equipment, and personnel.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Loss from Operations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Total Loss from
Operations.</FONT></I><FONT size="2"> Our loss from operations
was $8.5&nbsp;million in the first quarter of fiscal 2004 while
our loss from operations was $1.0&nbsp;million in the first
quarter of fiscal 2003. The increase in operating loss is
primarily due to the increased operating loss from the dELiA*s
retail operations that we acquired in September 2003, decreased
operating income from our sponsorship and other operations, and
increased corporate expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Direct Marketing Loss from
Operations.</FONT></I><FONT size="2"> Our loss from direct
marketing operations was $1.4&nbsp;million in the first quarter
of fiscal 2004 while our loss from direct marketing operations
was $1.5&nbsp;million in the first quarter of fiscal 2003.
Excluding the restructuring charge related to Girlfriends LA in
the first quarter of fiscal 2003, the direct marketing operating
loss increased in the first quarter of fiscal 2004 primarily as
a result of the costs of transitioning and integrating our
previously outsourced fulfillment and call center activities to
our Hanover, Pennsylvania facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Retail Stores Loss from
Operations.</FONT></I><FONT size="2"> Our loss from retail
stores operations was $2.3&nbsp;million in the first quarter of
fiscal 2004. The loss was generated from the dELiA*s retail
stores.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Sponsorship and Other Income from
Operations.</FONT></I><FONT size="2"> Our income from
sponsorship and other operations decreased 24.1% to
$4.1&nbsp;million in the first quarter of fiscal 2004 from
$5.4&nbsp;million in the first quarter of fiscal 2003. This
decrease resulted primarily due to lower revenues and margins in
our event marketing activities, together with OCM&#146;s
seasonal operating loss, offset by stronger advertising
placement income resultant from higher gross margins.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Interest and Other Income (Expense),
    Net</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest and other income, net of expense,
includes income from our cash equivalents and from
available-for-sale marketable securities and expenses related to
our financing obligations. In the three months ended
April&nbsp;30, 2004, we generated interest income of $120,000
and interest expense of $1.2&nbsp;million primarily related to
the issuance in July and August 2003 of our Debentures, as
compared with interest income of $291,000 and interest expense
of $4,000 in the three months ended April&nbsp;30, 2003. During
the first quarter of fiscal 2004, we recognized other income of
$388,000 related to a working capital adjustment resulting from
the MPM acquisition. The decrease in interest income resulted
primarily from lower interest rates and the lower cash and cash
equivalents and available-for-sale marketable securities
balances during the quarter ended April&nbsp;30, 2004 as
compared with the quarter ended April&nbsp;30, 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income Tax Benefit (Expense)</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the three months ended April&nbsp;30, 2004 we
recorded an income tax expense of $10,000 due to taxable
operating income generated at the state level. In the three
months ended April&nbsp;30, 2003 we recorded an income tax
benefit of $358,000 due to the taxable loss generated in the
quarter. Included in the tax benefit was a refund of $36,000 for
an amended prior year tax return. At April&nbsp;30, 2003 and
prior to our acquisition of dELiA*s, we had
</FONT>

<P align="center"><FONT size="2">33
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">expected the loss generated in the first quarter
to be offset by taxable income during the second half of fiscal
2003.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Liquidity and Capital Resources</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have financed our operations to date primarily
through the sale of equity and debt securities as we generated
negative cash flow from operations prior to fiscal 2002 and for
the three months ended April&nbsp;30, 2004. At January&nbsp;31,
2004, we had approximately $46.3&nbsp;million of unrestricted
cash, cash equivalents and short-term investments, along with
$5.6&nbsp;million of marketable securities classified as
non-current assets due to their stated maturities and our
intention to hold them for more than one year. At April&nbsp;30,
2004, we had approximately $35.3&nbsp;million of unrestricted
cash, cash equivalents and short-term investments along with
$4.2&nbsp;million of marketable securities classified as
non-current assets due to their stated maturities and our
intention to hold them for more than one year. Our principal
commitments at April&nbsp;30, 2004 consisted of the Debentures,
accounts payable, bank loans, accrued expenses and obligations
under operating and capital leases.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash provided by operating activities was
$12.0&nbsp;million in fiscal 2003 compared with
$24.1&nbsp;million in fiscal 2002. The decline was primarily due
to the transition to a net loss in fiscal 2003 as opposed to net
income in fiscal 2002, which resulted from the decline in direct
marketing segment financial performance, the addition of dELiA*s
unprofitable retail stores, and increased corporate expenses,
partially offset by the non-cash impact of the goodwill
impairment, a higher level of depreciation and amortization and
a smaller increase in operating assets net of operating
liabilities. Net cash used in operating activities was
$8.7&nbsp;million in the first three months of fiscal 2004
compared with net cash used in operating activities of
$10.5&nbsp;million in the first three months of fiscal 2003. The
reduced cash usage was primarily due to tighter working capital
management reflected by a smaller increase in operating assets
net of operating liabilities, partially offset by the increased
net loss in fiscal 2004 as compared with the net loss in fiscal
2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash used in investing activities was
$72.0&nbsp;million in fiscal 2003 consisting of the net
application of $1.6&nbsp;million of cash to acquire
available-for-sale marketable securities, $66.7&nbsp;million to
acquire businesses, and $3.8&nbsp;million for capital
expenditures. Cash used in investing activities was
$106.9&nbsp;million in fiscal 2002 consisting of the net
application of $7.9&nbsp;million of cash to acquire
available-for-sale marketable securities, $89.6&nbsp;million to
acquire businesses, $4.3&nbsp;million for capital expenditures
and $4.9&nbsp;million to acquire databases and marketing rights.
Cash used in investing activities was approximately
$2.0&nbsp;million in the three months of fiscal 2004, due
primarily to the usage of $5.1&nbsp;million to acquire
businesses and $1.6&nbsp;million for capital expenditures,
offset by the net cash proceeds of $4.7&nbsp;million from our
sales, purchases and maturities of available-for-sale marketable
securities. In the first three months of fiscal 2003,
$16.5&nbsp;million of cash was provided by investing activities,
due primarily to net cash proceeds of $17.6&nbsp;million from
our sales, purchases and maturities of available-for-sale
marketable securities offset by $1.0&nbsp;million for capital
expenditures.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash provided by financing activities was
$52.1&nbsp;million in fiscal 2003 due primarily to net proceeds
of $66.8&nbsp;million received from the issuance of the
Debentures in the private placement market, offset primarily by
the repurchase of 600,000&nbsp;shares of our common stock for
$3.0&nbsp;million and the net repayment of $11.9&nbsp;million on
credit facilities assumed in the OCM and dELiA*s acquisitions.
Net cash provided by financing activities was $56.4&nbsp;million
in fiscal 2002 due primarily to the gross proceeds from our
public equity offering in February 2002. In fiscal 2003 and
2002, we recorded non-cash charges related to Series&nbsp;B
Convertible Preferred Stock accretion and dividends of
$1.9&nbsp;million and $2.1&nbsp;million, respectively. Net cash
provided by financing activities was $3.0&nbsp;million in the
three months ended April&nbsp;30, 2004 compared with
$2.8&nbsp;million of cash used in financing activities in the
three months ended April&nbsp;30, 2003. The cash provided by
financing activities in the three months
</FONT>

<P align="center"><FONT size="2">34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">ended April&nbsp;30, 2004 was due primarily to
$3.1&nbsp;million of net borrowings under our line of credit
agreement. In the three months ended April&nbsp;30, 2003, net
cash used in financing activities of $2.8&nbsp;million resulted
primarily from the repurchase of 600,000&nbsp;shares of our
common stock for approximately $3.0&nbsp;million.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our liquidity position as of April&nbsp;30, 2004
consisted of $35.3&nbsp;million of unrestricted cash, cash
equivalents and short-term investments. We expect our liquidity
position to meet our anticipated cash needs for working capital
and capital expenditures, for at least the next 24&nbsp;months,
excluding the impact of any potential, as yet unannounced
acquisitions. If cash generated from our operations is
insufficient to satisfy our cash needs, we may be required to
raise additional capital. If we raise additional funds through
the issuance of equity securities, our stockholders may
experience significant dilution. Furthermore, additional
financing may not be available when we need it or, if available,
financing may not be on terms favorable to us or to our
stockholders. If financing is not available when required or is
not available on acceptable terms, we may be unable to develop
or enhance our products or services. In addition, we may be
unable to take advantage of business opportunities or respond to
competitive pressures. Any of these events could have a material
and adverse effect on our business, results of operations and
financial condition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;29, 2003, we adopted a stock
repurchase program, authorizing the repurchase of up to
$10&nbsp;million of our common stock from time to time in the
open market at prevailing market prices or in privately
negotiated transactions. As of January&nbsp;31, 2004, we had
utilized $3.0&nbsp;million of the authorized amount of this
program. It is anticipated that additional share repurchases
under this program, if any, will be funded by available working
capital.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Contractual Obligations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents our significant
contractual obligations as of January&nbsp;31, 2004 (in
thousands):
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Payments Due By Period</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Less than</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">More than</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Contractual Obligations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1&nbsp;Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1-3&nbsp;Years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">3-5&nbsp;Years</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5&nbsp;Years</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Convertible Debentures due 2023(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mortgage Loan Agreement
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating Lease Obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Lease Obligations (including interest)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase Obligations(b)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Future Non-Compete Payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,542</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">175,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
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<TR>
    <TD valign="top">
    <FONT size="2">(a)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The Senior Convertible Debentures due 2023 may be
    redeemed after August&nbsp;1, 2008 at the option of the holder.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(b)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Our purchase obligations are primarily related to
    inventory commitments and service agreements.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have long-term noncancelable operating lease
commitments for retail stores, office space, warehouse
facilities, and equipment. We also have long-term noncancelable
capital lease commitments for equipment.
</FONT>

<P align="center"><FONT size="2">35
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<P align="left">
<B><FONT size="2">Off-Balance Sheet Arrangements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources.
</FONT>

<P align="left">
<B><FONT size="2">Guarantees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have no significant financial guarantees.
</FONT>

<P align="left">
<B><FONT size="2">Effect of New Accounting Standards</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have described the impact anticipated from the
adoption of certain new accounting pronouncements effective in
fiscal 2003 in Note&nbsp;2 to the consolidated financial
statements.
</FONT>

<P align="left">
<B><FONT size="2">Inflation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, our costs are affected by inflation
and we may experience the effects of inflation in future
periods. We believe, however, that such effects have not been
material to us during the past.
</FONT>

<P align="left">
<B><FONT size="2">Forward-Looking Statements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Statements in this prospectus expressing our
expectations and beliefs regarding our future results or
performance are forward-looking statements within the meaning of
Section&nbsp;27A of the Securities Act of 1933, as amended (the
&#147;Securities Act&#148;) and Section&nbsp;21E of the
Securities Exchange Act of 1934, as amended (the &#147;Exchange
Act&#148;) that involve a number of substantial risks and
uncertainties. When used in this prospectus, the words
&#147;anticipate,&#148; &#147;may,&#148; &#147;could,&#148;
&#147;plan,&#148; &#147;believe,&#148; &#147;estimate,&#148;
&#147;expect&#148; and &#147;intend&#148; and similar
expressions are intended to identify such forward-looking
statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Such statements are based upon management&#146;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 &#147;Risk Factors That May Affect Future
Results&#148; on page&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of this
prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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
</FONT>

<P align="center"><FONT size="2">36
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<P align="center">
<B><FONT size="2">OUR BUSINESS</FONT></B>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are a media, marketing services, direct
marketing and retail company targeting Generation&nbsp;Y, the
approximately 60&nbsp;million boys and girls in the United
States between the ages of 10 and 24. Our business integrates
direct mail catalogs, retail stores, print media, display media
boards, websites, on-campus marketing programs and promotional
events, and features a portfolio of brands that are well known
among Generation&nbsp;Y consumers and advertisers. We reach a
significant portion of Generation&nbsp;Y consumers through our
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, we are
able to offer advertisers targeted access to the youth market.
We sell third-party branded and private label products in key
Generation&nbsp;Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, our assets have enabled us to build a
comprehensive database that includes information about
approximately 26&nbsp;million Generation&nbsp;Y consumers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe we are the only
Generation&nbsp;Y-focused media company that combines
significant marketing reach with a comprehensive consumer
database, providing us with a deep understanding of the youth
market. This market is large. According to the United States
Census Bureau, more than 35% of the United States population is
under the age of 24. According to studies by Harris Interactive,
the projected annual income for Generation&nbsp;Y is about
$211&nbsp;billion and annual spending is about $172&nbsp;billion
per year&nbsp;&#151; about $3,000 in spending per person. Harris
Interactive studies have also shown that the college market is
large and influential, with approximately 15.8&nbsp;million
college students in the United States who control about
$46.5&nbsp;billion annually in discretionary spending.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We were incorporated in January 1996, launched
our Alloy website in August 1996 and began generating meaningful
revenues in August 1997 following the distribution of our first
Alloy catalog. Since then, we have grown rapidly, both
organically and through the completion of strategic
acquisitions. Our consolidated revenues have increased from
$2.0&nbsp;million for the fiscal year ended January&nbsp;31,
1997 to $371.9&nbsp;million for the fiscal year ended
January&nbsp;31, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe our business should continue to grow
as we capitalize on the following key assets:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Broad Access to
    Generation&nbsp;Y.</FONT></I><FONT size="2"> Our collection of
    media, marketing and retail assets enables us to reach a
    significant portion of the over 60&nbsp;million
    Generation&nbsp;Y consumers by:
    </FONT></TD>
</TR>

</TABLE>
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    <TD width="5%"></TD>
    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">circulating over 65&nbsp;million direct mail
    catalogs annually;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">producing college guides, books and recruitment
    publications;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">owning and operating 57 dELiA*s retail stores,
    including six outlet stores, in 22&nbsp;states;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">owning and operating over 30,000 display media
    boards on college and high school campuses throughout the United
    States;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">placing advertising in over 2,500 college and
    high school newspapers;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">interacting with our registered online user base
    that, as of January&nbsp;31, 2004, comprised of almost
    5&nbsp;million individuals who subscribed to our targeted e-mail
    magazines.
    </FONT></TD>
</TR>

</TABLE>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Comprehensive Generation&nbsp;Y
    Database.</FONT></I><FONT size="2"> As of May&nbsp;31, 2004, our
    database contained information about approximately
    27&nbsp;million individuals, including approximately
    8.4&nbsp;million individuals who have purchased products
    directly from us. In addition to names and addresses, our
    database contains a variety of valuable information that may
    include age, purchasing history, stated interests, online
    behavior, educational level and socioeconomic factors. We
    continually refresh and grow our database with information we
    gather through our media properties, marketing services, retail
    stores and direct marketing programs, as well as through
    acquisitions of companies that have database information. We
    analyze this data in detail, which we believe enables us to not
    only improve response rates from our own direct sales efforts
    but also to offer advertisers cost-effective ways of reaching
    highly targeted audiences.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">37
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Established Media and Marketing
    Franchises.</FONT></I><FONT size="2"> Our principal media and
    marketing franchises are well known by Generation&nbsp;Y
    consumers and by advertisers that target this market. Alloy,
    dELiA*s, CCS and Dan&#146;s Comp are recognized brands among
    Generation&nbsp;Y consumers. Each of these multi-media brands
    targets a specific segment of the youth market through retail
    stores, catalogs and/or websites. For advertisers, our portfolio
    of marketing businesses includes established marketers that
    target the youth market such as Market Place Media, 360 Youth,
    Alloy Marketing and Promotions, On Campus Marketing and Private
    Colleges&nbsp;&#38; Universities, which collectively have over
    60&nbsp;years of experience in creating and implementing
    advertising and marketing programs targeting the youth market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Strong Relationship with Advertisers and
    Marketing Partners.</FONT></I><FONT size="2"> We provide
    advertisers and marketing partners with highly targeted,
    measurable and effective means to reach the Generation&nbsp;Y
    audience. Our seasoned advertising sales force of over 100
    professionals has established strong relationships with youth
    marketers. During fiscal 2003, we had over 1,800 advertising
    clients, including AT&#38;T Wireless, Citibank, Hershey,
    L&#146;Oreal, New Balance, Paramount Pictures,
    Procter&nbsp;&#38; Gamble and Verizon Wireless.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We generate revenue from three reportable
segments:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">DIRECT MARKETING (formerly
    &#147;MERCHANDISING&#148;)
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">RETAIL STORES
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">SPONSORSHIP AND OTHER ACTIVITIES
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Direct Marketing Segment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective September 2003, and following our
acquisition of dELiA*s Corp., we changed the name of our catalog
and online commerce business from the &#147;merchandising
segment&#148; to the &#147;direct marketing segment.&#148; Our
direct marketing segment derives revenues from sales of
merchandise to consumers through our catalogs and websites. Net
merchandise revenues in our direct marketing segment for fiscal
2001, fiscal 2002 and fiscal 2003 were $124.1&nbsp;million,
$167.6&nbsp;million and $156.8&nbsp;million, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of our catalogs and associated websites
targets a particular segment of Generation&nbsp;Y and offers
products of interest to its audience.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Alloy</FONT></I><FONT size="2">&nbsp;&#151;
Our Alloy catalog ranges in length from 48 to 84 pages and
offers for sale an assortment of apparel, accessories, footwear
and room furnishings targeting Generation&nbsp;Y girls. During
fiscal 2003, we mailed 15 versions of the Alloy catalog and
allocated up to nine pages per catalog to our advertising
clients and marketing partners. Our flagship website
(WWW.ALLOY.COM) provides a broad range of merchandise,
community, and content for Generation&nbsp;Y girls. Through this
website, we offer the apparel items, outerwear, accessories,
footwear, cosmetics and room furnishings that are available in
our Alloy catalogs, as well as additional products and special
offers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">dELiA*s</FONT></I><FONT size="2">&nbsp;&#151;
Our dELiA*s catalog, which targets Generation&nbsp;Y girls and
offers a variety of apparel, accessories and home furnishings,
ranges from 48 to 112 pages in length. We acquired dELiA*s in
September 2003. From September&nbsp;6, 2003 through
January&nbsp;31, 2004, six versions of the dELiA*s catalog were
mailed. Our dELiA*s website (WWW.dELiAs.COM) is designed to
complement the catalog and offers the same accessories, apparel
items and footwear as are offered in the catalog, as well as
additional products and special offers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">CCS</FONT></I><FONT size="2">&nbsp;&#151; Our
CCS catalog, which targets Generation&nbsp;Y boys, ranges from
40 to 104&nbsp;pages in length and offers an assortment of
action sports equipment, such as skateboards and snowboards, and
related apparel, accessories and footwear. We mailed
10&nbsp;versions of the CCS catalog during fiscal 2003 and
allocated up to eight pages per catalog to our advertising
clients and marketing partners. Our CCS website (WWW.CCS.COM)
features products, content and community for action sports
enthusiasts. We offer the same action sports equipment and
related accessories, apparel items and footwear that are found
in our CCS catalogs, as well as additional products and special
offers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Dan&#146;s
Comp</FONT></I><FONT size="2">&nbsp;&#151; Our Dan&#146;s Comp
catalog, which also targets Generation&nbsp;Y boys, ranges from
36 to 108&nbsp;pages, focuses on the BMX bike market and offers
BMX bikes, parts and safety equipment, as well as related
</FONT>

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<FONT size="2">apparel, accessories and footwear. We mailed
eight versions of the Dan&#146;s Comp catalog during fiscal
2003. Our Dan&#146;s Comp website (WWW.DANSCOMP.COM) is a
popular online destination for BMX bike enthusiasts through
which we offer consumers the same BMX bike sports equipment and
related accessories, apparel items and footwear that we offer in
our Dan&#146;s Comp catalogs, as well as additional products and
special offers.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Direct Marketing Strategy</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our direct marketing strategy is designed to
minimize our exposure to trend risk and facilitate speed to
market and product assortment flexibility. Our primary objective
is to reflect, not lead, Generation&nbsp;Y styles and tastes. We
select merchandise from what we believe are quality designers
and producers, allowing us to stay current with the tastes of
the market rather than to predict future trends. Our buyers and
merchandisers work closely with our many vendors to tailor
products to our specifications. Through this strategy, we
believe we are able to minimize design risk and make final
product selections only two to three months before the products
are brought to market, not the typical six to nine months
required by many apparel retailers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have designed our operational processes to
support our direct marketing strategy. Our buyers have years of
experience working with Generation&nbsp;Y retail and direct
marketing companies. We believe our staff has a proven ability
to identify desirable products and ensure that our vendors meet
specific guidelines regarding product quality and production
time. At present, we primarily use domestic vendors who have the
ability to produce and ship products within two to eight weeks.
This speed to market gives us flexibility to incorporate the
latest trends into our product mix and to better serve the
evolving tastes of Generation&nbsp;Y.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our direct marketing strategy also enables us to
manage our inventory levels efficiently. We attempt to limit the
size of our initial merchandise orders and rely on quick
re-order ability. Because we do not make aggressive initial
orders, we believe we are able to limit our risk of excess
inventory. Additionally, we use our websites to offer special
product prices and periodically mail various sales catalogs to
our customers to sell slower moving inventory, complementing the
selling capacity of our dELiA*s outlet stores.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because Alloy, dELiA*s, CCS and Dan&#146;s Comp
are recognized and popular brands among Generation&nbsp;Y
consumers, our websites and catalogs are a valuable marketing
tool for our vendors. As a result, our vendors often grant us
online and catalog exclusivity for products we select. We
believe this exclusivity makes the merchandise in the Alloy,
dELiA*s, CCS and Dan&#146;s Comp catalogs more attractive to our
target audience and protects us from direct price comparisons.
Our merchandise selection includes products from more than 500
vendors. dELiA*s primarily carries its own branded merchandise
as well as merchandise from well known names including Paul
Frank, Billabong, and Puma. Brands currently offered through
Alloy include nationally recognized names such as Vans, Roxy/
Quiksilver and Skechers, as well as smaller, niche labels,
including Paris Blues and Free People. CCS carries merchandise
and equipment from major action sports brands such as World
Industries, Osiris and Birdhouse. Dan&#146;s Comp merchandise
includes a complete line of BMX-style bicycles, parts, safety
equipment, apparel and accessories from brands including Huffy,
Hoffman and Free Agent bikes, and Etnies, Split and DC apparel
and footwear.
</FONT>

<DIV>&nbsp;</DIV>

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<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Ordering, Fulfillment and Customer
    Service</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In order to take, fulfill and ship orders for our
Alloy, CCS, Old Glory and Girlfriends LA merchandise businesses,
we have used a full-service, integrated call center and
fulfillment center staffed with trained personnel and owned and
operated by NewRoads, Inc. (&#147;NewRoads&#148;), a specialized
third-party fulfillment services company. In Martinsville,
Virginia, NewRoads has over 400,000&nbsp;square feet of
warehouse space to support Alloy&#146;s activity, and a 250-seat
call center to handle both Alloy and Girlfriends LA inquiries.
In addition, NewRoads has over 300,000&nbsp;square feet of
warehouse space in Portland, Tennessee to support CCS and
Girlfriends LA warehouse and fulfillment activities, and a
150-seat call center in San&nbsp;Luis Obispo, California to
handle CCS inquiries. We monitored our NewRoads relationship
closely, in part by having several of our employees working on
site at each NewRoads facility.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We process Dan&#146;s Comp orders through our own
47-seat call center and warehouse facility located in Mt.
Vernon, Indiana. We staff our Dan&#146;s Comp call center and
warehouse with our own employees. The Dan&#146;s Comp
fulfillment center has approximately 29,000&nbsp;square feet of
warehouse space. We initially processed Old Glory
</FONT>

<P align="center"><FONT size="2">39
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<FONT size="2">orders through a 30-seat call center and
warehouse facility located in Westbrook, Connecticut which was
owned and operated by the former owners of Old Glory. In April
2003, we transferred the Old Glory call center and warehouse
operations to NewRoads, which handles the Old Glory call center
functions at its San&nbsp;Luis Obispo, California location and
the Old Glory warehousing activities from its Portland,
Tennessee location.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We process dELiA*s customer orders and retail
stock shipments through a warehouse and fulfillment center in
Hanover, Pennsylvania. Our 200-seat call center is staffed with
personnel in Westerville, Ohio. Following our acquisition of
dELiA*s, we shipped an average of 23,000&nbsp;units to retail
stores and 5,000 customer packages per day from this center. Our
busiest shipping days for dELiA*s involved shipping
82,000&nbsp;units to retail stores and 16,000 customer packages
for the direct marketing segment. We use an integrated picking,
packing and shipping system with a live connection to our direct
order entry system. The system monitors the in-stock status of
each item ordered, processes orders and generates warehouse
selection tickets and packing slips for order and fulfillment
operations that we acquired in connection with our acquisition
of dELiA*s.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the third quarter of fiscal 2003, we made
the strategic decision to transfer substantially all of our
fulfillment activities for our Alloy and CCS units to our
recently acquired distribution center in Hanover, Pennsylvania
during fiscal 2004. We notified New Roads that we would be
exiting the New Roads&#146; facilities during the first half of
fiscal 2004. As of April 2004, we transferred the Alloy call
center operations to our Westerville, Ohio location and began to
fulfill and ship Alloy orders from our Hanover, Pennsylvania
warehouse. In May 2004, we transferred order-taking,
fulfillment, and shipments related to our CCS direct marketing
brand to our call center in Westerville, Ohio and our warehouse
in Hanover, Pennsylvania.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that high levels of customer service
and support are critical to the value of our services and to
retaining and expanding our customer base. We routinely monitor
customer service calls at each of our call centers for quality
assurance purposes. Additionally, we review our call and
fulfillment centers&#146; policies and distribution procedures
on a regular basis. A majority of our catalog and Internet
orders are shipped within 48&nbsp;hours of credit approval. In
cases in which the order is placed using another person&#146;s
credit card and exceeds a specified threshold, the order is
shipped only after we have received confirmation from the
cardholder. Customers generally receive orders within three to
ten business days after shipping. Our shipments are generally
carried to customers by United Parcel Service and the United
States Postal Service.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trained customer service representatives and
sales personnel historically have been available for the Alloy
and Girlfriends LA brands 24&nbsp;hours a day, 7&nbsp;days a
week through multiple toll-free telephone numbers. CCS and Old
Glory trained customer service representatives historically have
been available from 5:00&nbsp;A.M. to 10:00&nbsp;P.M. Eastern
Standard Time, Monday through Friday; 5:00&nbsp;A.M. to
9:30&nbsp;P.M. on Saturday; and 9:30&nbsp;A.M. to
10:00&nbsp;P.M. on Sunday, while sales personnel are available
24&nbsp;hours a day, 7&nbsp;days per week. Dan&#146;s Comp
customer service representatives and sales personnel are
available from 9:00&nbsp;A.M. to 10:00&nbsp;P.M. Eastern
Standard Time, Monday through Friday; from 10:00&nbsp;A.M. to
8:00&nbsp;P.M. on Saturday, and from 12&nbsp;P.M. to 8&nbsp;P.M.
on Sunday. dELiA*s trained customer service representatives are
available from 8:00&nbsp;A.M. to 2:00&nbsp;A.M. Eastern Standard
Time, 7&nbsp;days per week, while sales personnel are available
24&nbsp;hours a day, 7&nbsp;days per week. The same management
team, with dedicated personnel for each brand, now handle Alloy
and CCS customer service and sales calls, all during the same
service hours. The representatives guide customers through the
order process, monitor order progress and provide general
information about our products such as sizing advice and product
features.
</FONT>

<P align="left">
<B><FONT size="2">Retail Stores Segment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our retail stores segment derives revenue
primarily from the sale, through dELiA*s retail and outlet
stores, of apparel, accessories and home furnishings to
consumers. Our dELiA*s retail stores display merchandise
exclusively in mall stores and sell directly to customers who
visit those locations. As of June&nbsp;8, 2004, we operated 57
dELiA*s stores, including six outlet stores, in 22&nbsp;states.
The six outlet stores are located in Riverhead, New York;
Central Valley, New York; Tannersville, Pennsylvania; Jackson,
New Jersey; San&nbsp;Marcos, Texas; and Clinton, Connecticut.
Our retail stores range in size from 2,500 to 5,100&nbsp;square
feet, with an average size of approximately 3,700&nbsp;square
feet. We began operation of the dELiA*s stores upon the
acquisition of dELiA*s in September 2003. Retail store revenues
from the date of acquisition through the end of fiscal year
</FONT>

<P align="center"><FONT size="2">40
</FONT>

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<FONT size="2">2003 were $30.1&nbsp;million. In the fourth
quarter of fiscal 2003, we made a strategic decision to close up
to 17 dELiA*s retail stores, six of which have been closed as of
June&nbsp;8, 2004.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Store Operations.</FONT></I><FONT size="2">
Each store has a manager, one or more assistant managers, and
approximately six to twelve part-time sales associates. District
managers supervise approximately five to eight stores covering a
wide geographic area, and approximately four or five district
managers report to a regional manager. We have two regional
managers. District managers, store managers, assistant store
managers and part-time sales associates participate in a bonus
program based on achieving predetermined levels of sales in
their respective stores. dELiA*s stores are open during mall
shopping hours. dELiA*s has well-established store operating
policies and procedures and an extensive in-store training
program for new store managers and assistant store managers. We
place great emphasis on our loss prevention program in order to
control inventory shrinkage.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Store Expansion.</FONT></I><FONT size="2">
During fiscal 2003 we did not open any new dELiA*s stores.
dELiA*s&#146; site selection strategy historically has been to
locate its stores primarily in regional malls serving markets
that meet its demographic criteria, including average household
income and population density. It also has considered mall sales
per square foot, the performance of other retail tenants serving
teens and young adult customers, anchor tenants and occupancy
costs. As part of our ongoing evaluation of the dELiA*s
operations, we have completed our assessment of dELiA*s&#146;
store portfolio and estimated store exit, lease costs, and
severance related to 17 dELiA*s retail stores. The growth of our
retail store operations depends upon our ability to operate
stores on a profitable basis. If we decide to open additional
retail stores, our ability to expand our retail store operations
successfully will be dependent upon a number of factors,
including sufficient demand for our merchandise in existing and
new markets, our ability to locate and obtain favorable store
sites, negotiate acceptable lease terms, obtain adequate
merchandise supply, and hire and train qualified management and
other employees.
</FONT>

<P align="left">
<B><FONT size="2">Sponsorship and Other Activities
Segment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our sponsorship and other activities segment
derives revenue largely from traditional, blue chip advertisers
that seek highly targeted, measurable and effective marketing
programs to reach Generation&nbsp;Y. Advertisers can reach
Generation&nbsp;Y through integrated marketing programs that
include our catalogs, books, websites, and display media boards,
as well as through promotional events, product sampling, college
and high school newspaper advertising, customer acquisition
programs and other marketing services that we provide.
Sponsorship and other revenues for fiscal years 2001, 2002 and
2003 were $41.6&nbsp;million, $131.8&nbsp;million, and
$185.0&nbsp;million respectively.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD>
    <B><I><FONT size="2">Sponsorship and Advertising</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">360 Youth is our media and marketing arm, which
includes the assets and experience of several college and teen
marketing companies, including CASS Communications, Market Place
Media (All Campus Media and Armed Forces Communications),
YouthStream, Private Colleges&nbsp;&#38; Universities and
others, to provide sales and marketing solutions targeting young
adults. 360 Youth enables Fortune 500&nbsp;companies and other
advertising clients to reach approximately 25&nbsp;million
Generation&nbsp;Y consumers each month through a comprehensive
mix of programs incorporating proprietary media assets such as
school-based media boards, websites and catalogs, as well as
college, high school, military base and multi-cultural
newspapers. We own and operate over 30,000 display media boards
that are located in high traffic areas on college and high
school campuses. These one, two or three panel display media
boards often feature full color, backlit advertising as well as
scrolling electronic messaging. Through our newspaper
advertising units, we are able to connect advertisers with more
than 55&nbsp;million readers throughout the United States. The
acquisition of InSite in March 2004 added approximately
13,000&nbsp;panels to our out-of-home media network, with a
focus on bar and restaurant venues, giving us improved
advertising access to the young adult market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On Campus Marketing is our college-focused
specialty marketing business, which provides to college students
and their parents a variety of college- or university-endorsed
products. Products range from residence hall linens to care
packages to diploma frames. During fiscal 2003, we acquired
substantially all of the assets and liabilities of OCM Direct,
Inc., Collegiate Carpets, Inc. and Carepackages, Inc., all of
which were wholly owned
</FONT>

<P align="center"><FONT size="2">41
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<DIV align="left">
<FONT size="2">subsidiaries of Student Advantage, Inc., which
businesses are held by our wholly owned subsidiaries, On Campus
Marketing, LLC, Collegiate Carpets, LLC and Care Packages, LLC.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Promotional Marketing</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy Marketing and Promotions (AMP)&nbsp;is our
promotional marketing unit specializing in event and field
marketing, sampling and acquisitions programs, Internet design
services and consumer research. During fiscal 2002, we
consolidated under AMP the assets and experience of established
promotion agencies and marketing services companies, including
the 360 Youth business of MarketSource Corporation (though we
have transferred the 360 Youth name to our media and marketing
arm), Triple Dot Communications, Y-Access and Target
Marketing&nbsp;&#38; Promotions, to deliver effective,
customized promotions. AMP clients include AT&#38;T, Verizon
Wireless, Maybelline, Garnier, Hasbro, Panasonic, New Balance
and Paramount Pictures.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Print Media/ Websites</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We reach Generation&nbsp;Y consumers through
catalogs, custom publications and the Internet.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Alloy/ CCS
Catalogs</FONT></I><FONT size="2">&nbsp;&#151; Our catalogs
enable our advertising clients and marketing partners to reach
the Generation&nbsp;Y audience through print advertisements. We
have included advertising pages in certain of our catalogs.
During fiscal 2003, we allocated up to nine pages of advertising
per Alloy catalog and up to eight pages per CCS catalog.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Private Colleges&nbsp;&#38;
Universities</FONT></I><FONT size="2">&nbsp;&#151; Under the
Private Colleges&nbsp;&#38; Universities brand, we publish over
30 editions of targeted college guides providing information
about private colleges and universities and the admissions
process to college-bound high school students, their parents,
and high-school guidance counselors. Our editions target
students based on academic achievement, geography and special
interests such as science and medicine, among others. We
distribute our guidebooks to college-bound students across the
United States. Complementing our published college and
university guides, our Private Colleges&nbsp;&#38; Universities
websites (WWW.PRIVATECOLLEGES.COM and WWW.COLLEGEXPRESS.COM)
provide information on colleges and universities to
college-bound high school students. Hundreds of colleges and
universities advertise their programs and recruit students via
these websites.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Alloy/dELiA*s/ CCS/ Dan&#146;s Comp
Websites</FONT></I><FONT size="2">&nbsp;&#151; Our direct
marketing websites complement our catalogs of the same name and
enable our advertisers and clients to reach our
Generation&nbsp;Y audience online.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">eStudentLoan</FONT></I><FONT size="2">&nbsp;&#151;
Our eStudentLoan websites (WWW.ESTUDENTLOAN.COM and
WWW.ABSOLUTELYSCHOLARSHIPS.COM) feature college scholarship and
financial aid database search engines. These websites complement
our college recruitment publications and websites to serve the
college-bound segment of Generation&nbsp;Y.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">College
Club</FONT></I><FONT size="2">&nbsp;&#151; Our college club
website (WWW.COLLEGECLUB.COM) features e-mail, clubs, chat,
personal sites, student discounts and advice, and enables
advertisers to reach the college market online.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Careers and
Colleges</FONT></I><FONT size="2">&nbsp;&#151; Our Careers and
Colleges website (WWW.CAREERSANDCOLLEGES.COM) features a virtual
guidance counselor that helps students explore career and
college options. The website provides essential advice for
choosing a career, selecting a school, and paying for college.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Content</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Alloy Entertainment/ 17th Street
Productions</FONT></I><FONT size="2">&nbsp;&#151; Through Alloy
Entertainment and 17th Street Productions, we develop youth
entertainment properties including books and concepts for
television series and motion pictures. We believe we are the
largest packager of books for the teen market. Some of our
properties include <I>Roswell, Sweet Valley High, Fearless
</I>and <I>The Sisterhood of the Traveling Pants.</I>
</FONT>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Sales&nbsp;&#38; Marketing
    Salesforce</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our advertising sales organization includes over
100 sales professionals who are either account managers
generally responsible for specific geographic regions or product
specialists. Our account managers and product
</FONT>

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<FONT size="2">specialists work closely together to cross-sell
our media assets and marketing capabilities to existing
advertising customers and to build relationships with new
advertisers. Our account managers are trained and motivated to
sell the entire portfolio of our media and advertising services
including:
</FONT>
</DIV>
<P>

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    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">advertising in our custom publications, catalogs
    and websites;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">advertising on our display media boards;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">marketing programs such as product sampling,
    customer acquisition programs and promotional events;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">advertising in college, high school, military
    base and multi-cultural newspapers.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our advertising sales organization has grown
through a combination of external hiring and our acquisitions of
Private Colleges&nbsp;&#38; Universities, CASS Communications,
360 Youth, Market Place Media and On Campus Marketing, each of
which had an experienced sales force.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our advertisers come from a wide range of
industries that target the Generation&nbsp;Y audience including
apparel, consumer goods and electronics, cosmetics,
entertainment, financial services, food and beverage and others.
Our advertising revenue base is well diversified, and no single
advertiser represented more than 4% of our total sponsorship and
other activities revenue in fiscal 2003.
</FONT>

<P align="left">
<B><FONT size="2">Infrastructure, Operations and
Technology</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operations are dependent on our ability to
maintain our computer and telecommunications systems in
effective working order and to protect our systems against
damage from fire, natural disaster, power loss,
telecommunications failure or similar events.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Where appropriate, we have implemented disaster
recovery programs for our various businesses. Critical files are
copied to backup tapes each night and regularly stored at
off-site storage facilities. Arrangements have also been made
for the availability of third-party &#147;hot sites&#148; as
well as telecommunications recovery capability. Our servers are
powered by an uninterruptible power supply 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. We
implemented these various redundancies and backup measures in
order to minimize the risk associated with damage from fire,
power loss, telecommunications failure, break-ins, computer
viruses, denial of service (DOS)&nbsp;attacks, hacking and other
events beyond our control.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We strive for no downtime in our online
services.</FONT></I><FONT size="2"> All critical components of
the system are redundant, which allows continuous service in
case of unexpected component failure, maintenance or upgrades.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, we license commercially available
technology whenever possible in lieu 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. Since April 2002,
Exodus, a Cable&nbsp;&#38; Wireless Service (recently acquired
by SAVVIS Communications Corp), and Equinix Inc., third-party
providers located in Sterling, Virginia and Ashburn, Virginia,
respectively, have provided us with co-location and bandwidth
(i.e., our Internet connection). Our infrastructure is scaleable
which allows us to adjust quickly to our expanding user base.
Steps were taken upon the acquisition of dELiA*s to migrate its
commercial systems from the Cable&nbsp;&#38; Wireless data
center in Jersey City, New Jersey into Alloy&#146;s standard,
redundant facility in Virginia. We expect to complete this
process by the end of the second quarter of fiscal 2004. Other
data and voice systems in the call center and fulfillment center
are being hardened and made redundant with the addition of
backup circuits, Sonet rings, backup generators and other system
upgrades. We also expect to complete these processes by the end
of the second quarter of fiscal 2004.
</FONT>

<P align="left">
<B><FONT size="2">Competition</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Competition for the attention of
Generation&nbsp;Y consumers is considerable. Our catalogs
compete with other catalog retailers and direct marketers, some
of which specifically target our customers. We also compete with
a variety of other companies serving segments of the
Generation&nbsp;Y market including various mail-order and web-
</FONT>

<P align="center"><FONT size="2">43
</FONT>

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<DIV align="left">
<FONT size="2">based retailers, promotions and marketing
services firms, youth-targeted traditional retailers either in
their physical or online stores, and online service providers
that offer products of interest to Generation&nbsp;Y consumers.
Our dELiA*s retail stores compete with traditional department
stores, as well as specialty retailers, for teen and young adult
customers.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We compete for users and advertisers with many
media companies, including companies that attempt, as we do, to
target Generation&nbsp;Y consumers. These include
Generation&nbsp;Y-focused magazines such as <I>Seventeen, YM,
Teen </I>and <I>Teen People;</I> teen-focused television and
cable channels such as the WB Network and MTV; websites
primarily focused on the Generation&nbsp;Y demographic group;
and online service providers with teen-specific channels, such
as America Online.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Many of our current and potential competitors
have longer operating histories, larger customer or user bases
and significantly greater financial, marketing and other
resources than we do. In addition, competitors could enter into
exclusive distribution arrangements with our vendors or
advertisers and deny us access to their products or their
advertising dollars. If we face increased competition, our
business, operating results and financial condition may be
materially and adversely affected.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that our principal competitive
advantages are:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">advertising in college, high school, military
    base and multi-cultural newspapers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the size and level of detail in our database;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our relationships with advertisers and marketing
    partners;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the consumer and media brands we have developed
    in the Generation&nbsp;Y market;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our knowledge of the Generation&nbsp;Y audience
    and our ability through our marketing franchises to continually
    analyze the market; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to deliver targeted Generation&nbsp;Y
    audiences to advertisers through cost-effective, cross-media
    advertising programs.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Seasonality</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our historical revenues and operating results
have varied significantly from quarter to quarter due to
seasonal fluctuations in consumer purchasing patterns and the
impact of acquisitions. Sales of apparel, accessories, footwear
and action sports equipment through our websites, catalogs and
retail stores have been higher in our third and fourth fiscal
quarters, which contain the key back-to-school and holiday
selling seasons, than in our first and second fiscal quarters.
We believe that advertising and sponsorship sales follow a
similar pattern, with higher revenues in the third and fourth
quarters (particularly the third quarter) as marketers more
aggressively attempt to reach our Generation&nbsp;Y audience
during these major spending seasons and capture student interest
at the outset of the school year.
</FONT>

<P align="left">
<B><FONT size="2">Intellectual Property</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have registered the Alloy name, among other
trademarks, with the United States Patent and Trademark Office.
Applications for the registration of certain of our other
trademarks and service marks are currently pending. We also use
trademarks, trade names, logos and endorsements of our suppliers
and partners with their permission. We are not aware of any
pending material conflicts concerning our marks or our use of
others&#146; intellectual property.
</FONT>

<P align="left">
<B><FONT size="2">Government Regulation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are subject, directly and indirectly, to
various laws and governmental regulations relating to our
business. The Internet is rapidly evolving and few laws or
regulations directly apply to online commerce and community
websites. Due to the increasing popularity and use of the
Internet, governmental authorities in the United States and
abroad may adopt laws and regulations to govern Internet
activities. Laws with respect to online commerce may cover
issues such as pricing, taxing, distribution, unsolicited email
(&#147;spamming&#148;) and characteristics and
</FONT>

<P align="center"><FONT size="2">44
</FONT>

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<FONT size="2">quality of products and services. Laws with
respect to community websites may cover content, copyrights,
libel, obscenity and personal privacy. Any new legislation or
regulation or the application of existing laws and regulations
to the Internet could have a material and adverse effect on our
business, results of operations and financial condition.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Governments of other states or foreign countries
might attempt to regulate our transmissions or levy sales or
other taxes relating to our activities even though we do not
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.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our failure to qualify as a foreign corporation
in a jurisdiction where we are required to do so could subject
us to taxes and penalties for the failure to qualify. It is
possible that state and foreign governments might also attempt
to regulate our transmissions of content on our website or
prosecute us for violations of their laws. For example, a French
court has ruled that a website operated by a United States
company must comply with French laws regarding content, and an
Australian court has applied the defamation laws of Australia to
the content of a U.S.&nbsp;publisher posted on the
company&#146;s website. We cannot assure you that state or
foreign governments will not charge us with violations of local
laws or that we might not unintentionally violate these laws in
the future, or that foreign citizens will not obtain
jurisdiction over us in a foreign country, subjecting us to
litigation in that country under the laws of that country.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The United States Congress enacted the
Children&#146;s Online Privacy Protection Act of 1998
(&#147;COPPA&#148;) and the Federal Trade Commission
(&#147;FTC&#148;) promulgated implementing regulations, which
became effective in 2000. The principal COPPA requirements apply
to websites, or those portions of websites, directed to children
under age&nbsp;13. COPPA mandates that individually identifiable
information about minors under the age of the 13 not be
collected, used or displayed without first obtaining informed
parental consent that is verifiable in light of present
technology, subject to certain limited exceptions. As a part of
our efforts to comply with these requirements, we do not
knowingly collect personally identifiable information from any
person under 13&nbsp;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. This will
likely dissuade some percentage of our customers from using our
website, which may adversely affect our business. While we use
our best efforts to ensure that our websites are compliant with
COPPA, our efforts may not have been successful. If it turns out
that one or more of our websites is not COPPA compliant, we may
face litigation with the FTC or individuals or face a civil
penalty, which could adversely affect our business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A number of government authorities both in the
United States and abroad, as well as private parties, are
increasing their focus on privacy issues and the use of personal
information. The FTC and attorneys general in several states
have investigated the use of personal information by some
Internet companies. In particular, an attorney general 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. As a result,
we review our privacy policies on a regular basis and we believe
we are in compliance with relevant federal and state laws.
However, our business could be adversely affected if new
regulations or decisions regarding the use and/ or disclosure of
personal information are made, or if government authorities or
private parties challenge our privacy practices.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December, 2003, the Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003
(&#147;CAN-SPAM&#148;) was enacted by the United States
Congress. This legislation is effective as of January&nbsp;1,
2004, and regulates &#147;commercial electronic mail
messages,&#148; (i.e., email) the primary purpose of which is to
promote a product or service. Among its provisions are ones
requiring specific types of disclosures in covered emails,
requiring specific opt-out mechanisms and prohibiting certain
types of deceptive headers. Violations of its provisions may
result in civil money penalties and criminal liability. CAN-SPAM
further authorizes the FTC to establish a national
&#147;Do-Not-E-Mail&#148; registry akin to the recently adopted
Do Not Call Registry. Any entity that sends commercial email
messages, such as Alloy and our various subsidiaries, and those
who re-transmit such messages, must adhere to the CAN-SPAM
requirements. Compliance with these provisions may limit our
ability to send certain types of emails on our own behalf and on
behalf of various of our advertising clients, which may
</FONT>

<P align="center"><FONT size="2">45
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<DIV align="left">
<FONT size="2">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 litigation with the FTC or face civil penalties, which
could adversely affect our business.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The European Union Directive on the Protection of
Personal Data may affect our ability to make our websites
available in Europe if we do not afford adequate privacy to
European users. Similar legislation was recently passed in other
jurisdictions and may have a similar effect. Legislation
governing privacy of personal data provided to Internet
companies 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.
</FONT>

<P align="left">
<B><FONT size="2">Employees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;31, 2004, we had
1,274&nbsp;full-time and 2,733&nbsp;part-time employees. Of the
1,274&nbsp;full-time employees, 40 were senior management; 345
worked in sales, marketing and sales support; 75 worked in
finance; 241 worked in warehouse/fulfillment/customer service;
395 worked in other management and personnel; and 178 were
employed by our dELiA*s retail stores. Of the
2,733&nbsp;part-time employees, 1,541 worked for The Staffing
Authority, LLC, one of our subsidiaries, 275 were Alloy, Inc.
temporary staff and 917 were part-time associates at dELiA*s
retail stores. None of our employees are covered by a collective
bargaining agreement. We consider relations with our employees
to be good.
</FONT>

<P align="left">
<B><FONT size="2">Financial Information About Segments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Financial information about our segments is
summarized in Note&nbsp;19 to consolidated financial statements
found at page&nbsp;F-48 of this prospectus and in Note&nbsp;8 to
the unaudited financial statements found at page&nbsp;F-63 of
this prospectus.
</FONT>

<P align="left">
<B><FONT size="2">Website Access to Reports</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our corporate website is WWW.ALLOYINC.COM. Our
periodic and current reports are available free of charge on the
&#147;Investor Relations&#148; page of this website as soon as
reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange
Commission (the &#147;SEC&#148;). The items and information on
our website are not a part of this prospectus.
</FONT>

<DIV align="left">
<A name='111'></A>
</DIV>

<!-- link1 "PROPERTIES" -->

<P align="center">
<B><FONT size="2">PROPERTIES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth information
regarding the principal facilities, excluding retail stores,
that we used during fiscal 2003. Except for the property in
Hanover, PA, which we own, all such facilities are leased. We
believe our facilities are well maintained and in good operating
condition.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Appr. Sq.</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Location</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Use</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Footage</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New York, NY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Corporate office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chicago, IL
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Advertising and sales office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Los Angeles, CA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Advertising and sales office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Santa&nbsp;Barbara, CA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Market Place Media
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Boston, MA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Advertising and sales office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mt. Vernon, IN
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Dan&#146;s Comp general office, call center,
    warehouse
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cranbury, NJ
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">360 Youth general office, AMP warehouse
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New York, NY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">dELiA*s general office space
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Westerville, OH
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Call center
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Hanover, PA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warehouse and fulfillment center
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">360,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">46
</FONT>

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<DIV align="left">
<A name='112'></A>
</DIV>

<!-- link1 "LEGAL PROCEEDINGS" -->

<P align="center">
<B><FONT size="2">LEGAL PROCEEDINGS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about November&nbsp;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
us, James K. Johnson,&nbsp;Jr., Matthew C. Diamond, BancBoston
Robertson Stephens, Volpe Brown Whelan and Company, Dain
Rauscher Wessel and Ladenburg Thalmann&nbsp;&#38; Co., Inc. The
complaint purportedly was filed on behalf of persons purchasing
our common stock between May&nbsp;14, 1999 and December&nbsp;6,
2000 and alleges violations of Sections&nbsp;11, 12(a)(2) and 15
of the Securities Act of 1933 (the &#147;Securities Act&#148;)
and Section&nbsp;10(b) of the Securities Exchange Act of 1934
(the &#147;&#146;34 Act&#148;) and Rule&nbsp;10b-5 promulgated
thereunder. On or about April&nbsp;19, 2002, plaintiff filed an
amended complaint against us, the individual defendants and the
underwriters of our initial public offering. The amended
complaint asserts violations of Section&nbsp;10(b) of the
&#146;34 Act and mirrors allegations asserted against scores of
other issuers sued by plaintiffs&#146; counsel. Pursuant to an
omnibus agreement negotiated with representatives of the
plaintiffs&#146; counsel, Messrs.&nbsp;Diamond and Johnson have
been dismissed from the litigation without prejudice. In
accordance with the Court&#146;s case management instructions,
we joined in a global motion to dismiss the amended complaints,
which was filed by the issuers&#146; liaison counsel. By opinion
and order dated February&nbsp;19, 2003, the District Court
denied in part and granted in part the global motion to dismiss.
With respect to us, the Court dismissed the Section&nbsp;10(b)
claim and let the plaintiffs proceed on the Section&nbsp;11
claim. Accordingly, the remaining claim against us will focus
solely on whether the registration statement filed in connection
with our initial public offering contained an untrue statement
of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statement therein
not misleading. Although we have not retained a damages expert
at this time, the dismissal of the Section&nbsp;10(b) claim
likely will reduce the potential damages that plaintiffs can
claim. Management believes that the remaining allegations
against us are without merit. We and the individual defendants
have retained Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC
in connection with this matter. We participated in the
Court-ordered mediation with the other issuer defendants, the
issuers&#146; insurers and plaintiffs to explore whether a
global resolution of the claims against the issuers could be
reached. To this end, a memorandum of understanding setting
forth the proposed terms of a settlement was signed by counsel
to several issuers, including our counsel, which is not binding
upon us. In a press release dated June&nbsp;26, 2003,
plaintiffs&#146; counsel announced that the memorandum of
understanding had been signed, and that the process of obtaining
the approval of all parties to the settlement was underway. We
are participating in that process. Any definitive settlement,
however, will require final approval by the Court after notice
to all class members and a fairness hearing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about March&nbsp;8, 2003, several putative
class action complaints were filed in the United States District
Court for the Southern District of New York naming as defendants
us, James K. Johnson,&nbsp;Jr., Matthew C. Diamond and Samuel A.
Gradess. The complaints purportedly were filed on behalf of
persons who purchased our common stock between August&nbsp;1,
2002 and January&nbsp;23, 2003, and, among other things, allege
violations of Section&nbsp;10(b) and Section&nbsp;20(a) of the
&#146;34 Act and Rule&nbsp;10b-5 promulgated thereunder stemming
from a series of allegedly false and misleading statements made
by us to the market between August&nbsp;1, 2002 and
January&nbsp;23, 2003. At a conference held on May&nbsp;30,
2003, the Court consolidated the actions described above. On
August&nbsp;5, 2003, Plaintiffs filed a consolidated class
action complaint (the &#147;Consolidated Complaint&#148;) naming
the same defendants, which supersedes the initial complaint.
Relying in part on information allegedly obtained from former
employees, the Consolidated Complaint alleges, among other
things, misrepresentations of our business and financial
condition and the results of operations during the period from
March&nbsp;16, 2001 through January&nbsp;23, 2003 (the
&#147;class period&#148;), which artificially inflated the price
of our stock, including without limitation, improper
acceleration of revenue, misrepresentation of expense treatment,
failure to properly account for and disclose consignment
transactions, and improper deferral of expense recognition. The
Consolidated Complaint further alleges that during the class
period the individual defendants and the Company sold stock and
completed acquisitions using our stock. On June 28, 2004 we
reached a tentative settlement with the plaintiffs in this
action, which settlement, if approved by the court after notice
to the class members and a hearing, is in an amount which should
be covered entirely under our applicable directors&#146; and
officers&#146; insurance policies. The individual defendants
have retained the law firm of Cahill, Gordon&nbsp;&#38; Reindel
in connection with this matter. We have retained the law firm of
Katten Muchin Zavis Rosenman in connection with this matter.
</FONT>

<P align="center"><FONT size="2">47
</FONT>
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dELiA*s currently is party to a purported class
action litigation, which originally was filed in two separate
complaints in Federal District Court for the Southern District
of New York in 1999 against dELiA*s Inc. and certain of its
officers and directors. These complaints were consolidated. The
consolidated complaint alleges, among other things, that the
defendants violated Rule&nbsp;10b-5 under the &#146;34 Act by
making material misstatements and by failing to disclose certain
allegedly material information regarding trends in the business
during part of 1998. The parties have reached an agreement on a
full settlement of the action, which was approved by the court
on April&nbsp;21, 2004. The entire settlement amount will be
covered by dELiA*s insurance carrier.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about February&nbsp;1, 2002, a complaint
was filed in the Circuit Court of Cook County, Illinois naming
dELiA*s as a defendant. The complaint purportedly was filed on
behalf of the State of Illinois under the False Claims Act and
the Illinois Whistleblower Reward and Protection Act and seeks
unspecified damages and penalties for dELiA*s alleged failure to
collect and remit use tax on items sold by dELiA*s through its
catalogs and website to Illinois residents. On April&nbsp;8,
2004, the complaint was served on dELiA*s by the Illinois
Attorney General&#146;s Office, which assumed prosecution of the
complaint from the original filer. dELiA*s has retained the law
firm of Katten Muchin Zavis Rosenman in connection with this
matter. On June 15, 2004, dELiA*s filed a motion to dismiss the
action and joined in a Consolidated Joint Brief In Support Of
Motion To Dismiss previously filed on behalf of defendants in
similar actions being pursued by the Illinois Attorney General.
Management believes the proceedings are without merit and
intends to defend the action vigorously.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are involved in additional legal proceedings
that have arisen in the ordinary course of business. We believe
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 our financial condition or operating
results.
</FONT>

<P align="left">
<B><FONT size="2">Qualitative and Quantitative Disclosure About
Market Risk</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of April&nbsp;30, 2004, we held a portfolio of
$19.8&nbsp;million in fixed income marketable securities for
which, due to the conservative nature of our investments and
relatively short duration, interest rate risk is mitigated. We
do not own any derivative financial instruments in our
portfolio. Accordingly, we do not believe there is any material
market risk exposure with respect to derivatives or other
financial instruments that would require disclosure under this
item. Additionally, the $69.3&nbsp;million of Debentures were
issued at a fixed interest rate of 5.375%. 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.
</FONT>

<P align="left">
<B><FONT size="2">Changes in and Disagreements with
Accountants</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;31, 2002, we dismissed Arthur
Andersen LLP (&#147;Arthur Andersen&#148;) as our independent
auditors and named KPMG LLP (&#147;KPMG&#148;) as our new
independent auditors in accordance with a recommendation of the
Audit Committee of our Board of Directors. Arthur Andersen
previously audited our consolidated financial statements for the
year ended January&nbsp;31, 2002. The report of Arthur Andersen
on our consolidated financial statements for the year ended
January&nbsp;31, 2002 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the
same period, there were no disagreements with Arthur Andersen on
any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;28, 2004, the Audit Committee of our
Board of Directors (the &#147;Board&#148;) dismissed KPMG LLP
(&#147;KPMG&#148;) as our independent auditors effective
immediately. The Audit Committee made the decision to engage BDO
Seidman, LLP (&#147;BDO&#148;) as our independent auditors for
the fiscal year ending January&nbsp;31, 2005, effective as of
May&nbsp;28, 2004. The report of KPMG on our consolidated
financial statements for the years ended January&nbsp;31, 2003
and January&nbsp;31, 2004 did not contain an adverse opinion or
a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles, other than
the reference to our change in method of accounting for goodwill
and other intangible assets in 2002. During the same period,
there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During our two most recent fiscal years ended
January&nbsp;31, 2003 and January&nbsp;31, 2004, and through
May&nbsp;28, 2004, there were no &#147;reportable events&#148;
as listed in Item&nbsp;304(a)(1)(v)(A)-(D) of
Regulation&nbsp;S-K adopted by the Securities and Exchange
Commission (the &#147;Commission&#148;), except that, in
performing its audit of our Consolidated Financial Statements
for our fiscal year ended January&nbsp;31, 2004, KPMG noted two
matters
</FONT>

<P align="center"><FONT size="2">48
</FONT>
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<DIV align="left">
<FONT size="2">involving our internal controls that it
considered to be reportable conditions and/or material
weaknesses under the standards established by the American
Institute of Certified Public Accountants. A reportable
condition, which may or may not be determined to be a material
weakness, involves matters relating to significant deficiencies
in the design or operation of internal controls that, in
KPMG&#146;s judgment, could adversely affect our ability to
record, process, summarize and report financial data consistent
with the assertions of management on the financial statements.
The first reportable condition identified by KPMG related to the
absence of appropriate reviews and approvals of transactions,
accounting entries and systems output at our dELiA*s subsidiary.
According to KPMG, numerous adjusting entries came about as a
result of its audit procedures at dELiA*s that indicated a lack
of timely and appropriate management review during the closing
process. This reportable condition was not considered to be a
material weakness.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The second identified reportable condition was
considered a material weakness and concerned the ability of
accounting personnel to properly apply all relevant accounting
pronouncements related to goodwill, intangible assets and other
long-lived assets. Specifically, KPMG indicated that when we
applied the provisions of FASB No.&nbsp;142 relating to the
annual assessment of goodwill and other indefinite-lived
intangible assets carrying value, we incorrectly applied the
provisions of SFAS&nbsp;No.&nbsp;142 needed to calculate the
impairment amounts, and failed to test separately the carrying
values of our other indefinite-lived intangible assets. KPMG
also indicated that we incorrectly applied the provisions of
SFAS&nbsp;No.&nbsp;144, &#147;Accounting for the Impairment or
Disposal of Long-Lived Assets,&#148; in calculating impairment
amounts of other long-lived assets. In addition, they noted that
we had not formally documented triggering events for impairment
testing under either standard. Consequently, we did not properly
identify the adjustments that arose due to the weakness in our
internal control process, and KPMG indicated that we need to
implement modifications and upgrades to our financial reporting
process to ensure that this situation does not occur in the
future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The reportable condition and material weakness
have been discussed in detail by management, our Audit Committee
and KPMG, and we have authorized KPMG to respond fully to the
inquiries of BDO, our new independent auditors, concerning the
subject matter of the foregoing reportable conditions.
</FONT>

<P align="center"><FONT size="2">49
</FONT>
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<DIV align="left">
<A name='113'></A>
</DIV>

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<P align="center">
<B><FONT size="2">MANAGEMENT</FONT></B>

<P align="left">
<B><FONT size="2">The Board Of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Restated Certificate of Incorporation, as
amended, and Restated By-Laws provide that our business is to be
managed by or under the direction of our Board of Directors. Our
Board of Directors is divided into three classes for purposes of
election. One class is elected at each annual meeting of
stockholders to serve for a three-year term. Our Board of
Directors currently consists of six members, classified into
three classes as follows: (1)&nbsp;Samuel A. Gradess and Edward
A. Monnier constitute a class with a term ending at the 2004
Annual Meeting of Shareholders; (2)&nbsp;Matthew C. Diamond and
James K. Johnson,&nbsp;Jr. constitute a class with a term ending
at the 2005 Annual Meeting and (3)&nbsp;Peter M. Graham and
Anthony N. Fiore constitute a class with a term ending at the
2006 Annual Meeting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">David Yarnell resigned from our Board of
Directors on February&nbsp;1, 2004. Prior to his resignation,
Mr.&nbsp;Yarnell was included in the class of directors with a
term expiring at the 2006 Annual Meeting, and was a member of
the Audit Committee and Compensation Committee.
Mr.&nbsp;Yarnell&#146;s replacement, Anthony N. Fiore, was
appointed by the Board of Directors effective June&nbsp;2, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Based upon a review by the Board of Directors of
all relevant information, the Board of Directors has determined
that Messrs.&nbsp;Graham, Monnier and Fiore are not officers or
employees of Alloy, Inc., and none of them have a relationship
which, in the opinion of the Board of Directors, would interfere
with the exercise of their independent judgment in carrying out
the responsibilities of a director, and that each of
Messrs.&nbsp;Graham, Monnier and Fiore is an &#147;independent
director&#148; as that term is defined under
Rule&nbsp;4200(a)(15) of the NASDAQ Marketplace Rules and is
&#147;independent&#148; as that term is defined in the
applicable rules and regulations promulgated by the SEC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The names of our directors, and certain
information about them, including their positions on standing
committees of the Board of Directors, are set forth below:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew C. Diamond(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman, Chief Executive Officer, Treasurer and
    Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James K. Johnson,&nbsp;Jr.(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Operating Officer, President and Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Samuel A. Gradess(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer, Secretary and Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Peter M. Graham(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lead Non-Executive Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward A. Monnier(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony N. Fiore(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Member of the Administration Committee.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Chairman of the Audit Committee, and Member of
    the Compensation Committee and the Nominating and Corporate
    Governance Committee.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Chairman of the Nominating and Corporate
    Governance Committee and Member of the Audit Committee.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Member of the Audit Committee and Compensation
    Committee
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a brief summary of the
background of each of our directors:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Matthew C. Diamond
</FONT></I><FONT size="2">founded Alloy together with
Mr.&nbsp;Johnson in January 1996, and served as the Director of
Marketing and Planning until January 1999. He has served as one
of our directors since July 1996, was appointed Chief Executive
Officer in January 1999 and was elected Chairman of the Board in
April 1999. Mr.&nbsp;Diamond received his MBA from the Harvard
Graduate School of Business in 1996 and his BA in International
Studies and Economics from the University of North Carolina at
Chapel Hill in 1991. Mr.&nbsp;Diamond is also a director of
Genesco, Inc., a publicly traded company.
</FONT>

<P align="center"><FONT size="2">50
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">James K.
Johnson,&nbsp;Jr.</FONT></I><FONT size="2"> founded Alloy
together with Mr.&nbsp;Diamond in January 1996 and has been a
director since that time. He was appointed President of Alloy in
January 1997 and Chief Operating Officer in January 1999.
Mr.&nbsp;Johnson received his BA in History from Hamilton
College in 1989.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Samuel A. Gradess
</FONT></I><FONT size="2">joined us in July 1996 and has been a
director since that time. He was appointed Secretary and
Director of Finance and Administration of Alloy in January 1997
and Chief Financial Officer in January 1999. Mr.&nbsp;Gradess
received his BA in Economics from the University of Virginia in
1987.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Peter M. Graham</FONT></I><FONT size="2">, who
recently was appointed as our lead non-executive director, has
served as one of our directors since November 1998. He is a
managing director of Ladenburg Thalmann&nbsp;&#38; Co., Inc.
From 1994 until 2001, he held various positions with Ladenburg
Thalmann Group Inc., including Principal, President and Vice
Chairman of its principal subsidiary, Ladenburg
Thalmann&nbsp;&#38; Co. Inc. Mr.&nbsp;Graham joined Ladenburg
Thalmann&nbsp;&#38; Co. Inc. in 1976 after having attended the
Wharton School of Business at the University of Pennsylvania.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Edward Monnier </FONT></I><FONT size="2">has
served as one of our directors since March 2001. He is an
independent consultant specializing in mergers and acquisitions
and corporate strategy. Previously, Mr.&nbsp;Monnier was a Vice
President of Corporate Development&nbsp;&#38; Strategy with
Liberty Broadband Interactive Television, a wholly owned
subsidiary of Liberty Media Corporation, and held various
positions with Liberty Media Corporation subsidiaries from
October 1999 until November 2003. From June 1997 until October
1999, Mr.&nbsp;Monnier served as a strategy and mergers and
acquisitions consultant for LEK Consulting. Mr.&nbsp;Monnier
received a B.A. in Anthropology and in Philosophy, both from
Emory University in 1989 and an MBA from the Wharton School of
Business at the University of Pennsylvania in 1996.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Anthony N. Fiore </FONT></I><FONT size="2">has
served as one of our directors since June 2004. He is Executive
Vice President and part owner of MarketSource LLC, a private New
Jersey-based company that is an integrated marketing services
company, specializing in sales, marketing and technology
solutions. Mr.&nbsp;Fiore received a B.S. in Business
Administration from Wagner College in 1963 and an MBA from Pace
University in 1967.
</FONT>

<P align="left">
<B><FONT size="2">Committees Of The Board Of Directors And
Meetings</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Meeting Attendance.</FONT></I><FONT size="2">
During the fiscal year ended January&nbsp;31, 2004, there were
eight meetings of our Board of Directors. The Board of Directors
also acted by unanimous written consent, pursuant to Delaware
law, on eight occasions during this period. Each director was in
attendance, either in person or via telephone, at 75% or more of
the total number of meetings of the Board and of committees of
the Board on which he served during the fiscal year ended
January&nbsp;31, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Audit Committee.</FONT></I><FONT size="2"> Our
Audit Committee met nine times during the fiscal year ended
January&nbsp;31, 2004, and acted by unanimous written consent
pursuant to Delaware law three times. This committee currently
has three members, Peter M. Graham, Edward Monnier and Anthony
Fiore. Our Audit Committee reviews, acts on and reports to the
Board of Directors with respect to various auditing and
accounting matters, including the selection of our independent
auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of our independent auditors and our
accounting practices. The Audit Committee operates pursuant to a
written charter, which was adopted April&nbsp;5, 2000 and
amended and restated by action of the Board of Directors on
May&nbsp;21, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of the current members of the Audit Committee
are non-employee directors who: (1)&nbsp;meet the criteria for
independence set forth in Rule&nbsp;10A-3(b)(1) under the
Securities Exchange Act of 1934, as amended (the &#147;Exchange
Act&#148;) and Rule&nbsp;4200 of the NASDAQ Marketplace Rules;
(2)&nbsp;have not participated in the preparation of the
financial statements of Alloy, Inc. or any of its current
subsidiaries at any time during the past three years; and
(3)&nbsp;are able to read and understand fundamental financial
statements, including a company&#146;s balance sheet, income
statement and cash flow statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Compensation
Committee.</FONT></I><FONT size="2"> Our Compensation Committee
met twice during the fiscal year ended January&nbsp;31, 2004,
either in person or via telephone, and acted by unanimous
written consent pursuant to Delaware law on four occasions. This
committee currently is comprised of Anthony N. Fiore and
Peter&nbsp;M. Graham. Our Compensation Committee is authorized
to make recommendations concerning salaries and incentive
compensation for our employees and consultants, establish and
approve salaries and incentive compensation for certain of
</FONT>

<P align="center"><FONT size="2">51
</FONT>

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<DIV align="left">
<FONT size="2">our executive officers and administer our
employee benefit and stock option plans. The sole member of our
Compensation Committee, Mr.&nbsp;Graham, is an &#147;independent
director&#148; as that term is defined under Rule&nbsp;4200 of
the NASDAQ Marketplace Rules and is &#147;independent&#148; as
that term is defined in the applicable rules and regulations
promulgated by the SEC, and is neither an officer nor employee
of Alloy, Inc. or any of its subsidiaries.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Administration
Committee.</FONT></I><FONT size="2"> Our Administration
Committee met once, and acted by unanimous written consent
pursuant to Delaware law on two occasions, during the fiscal
year ended January&nbsp;31, 2004. This Committee has three
members, Matthew C. Diamond, James K. Johnson,&nbsp;Jr. and
Samuel A. Gradess, each of whom is an executive officer of the
Company. The Board of Directors has delegated authority to the
Administration Committee to make option grants, except for
grants to Matthew C. Diamond, James K. Johnson,&nbsp;Jr. and
Samuel A. Gradess. Any grant made by the Administration
Committee pursuant to the power granted to it by the Board of
Directors also requires the approval of the Compensation
Committee if the grant (i)&nbsp;is for more than
25,000&nbsp;shares to any single grantee, (ii)&nbsp;would, when
combined with all other grants made during the fiscal quarter in
which it was made, result in aggregate grants for more than
400,000&nbsp;shares during such fiscal quarter, net of option
cancellations and expirations during such fiscal quarter, or
(iii)&nbsp;is to an officer or director of the Company. The
Board of Directors has also delegated authority to the
Administration Committee to approve acquisitions of up to an
aggregate of $10,000,000 of acquisition consideration within a
fiscal quarter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Nominating And Corporate Governance
Committee.</FONT></I><FONT size="2"> Our Nominating and
Corporate Governance Committee was formed on May&nbsp;21, 2004
and is comprised of Peter Graham and Edward Monnier, both of
whom have been found by the Board of Directors to be an
&#147;independent director&#148; as that term is defined under
Rule&nbsp;4200 of the NASDAQ Marketplace Rules and
&#147;independent&#148; pursuant to the applicable rules and
regulations promulgated by the SEC. Mr.&nbsp;Monnier has been
designated Chairman of the Nominating and Corporate Governance
Committee, which operates pursuant to a written charter adopted
on May&nbsp;21, 2004 that is publicly available on our website
at www.alloyinc.com in the Corporate Governance subsection of
the Investor Relations section.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Nominating and Corporate Governance Committee
is responsible for (i)&nbsp;reviewing the appropriate size,
function and needs of the Board of Directors,
(ii)&nbsp;developing the Board&#146;s policy regarding tenure
and retirement of directors, (iii)&nbsp;establishing criteria
for evaluating and selecting new members of the Board, subject
to Board approval thereof, (iv)&nbsp;identifying and
recommending to the Board for approval individuals qualified to
become members of the Board of Directors, consistent with
criteria established by the Committee and the Board,
(v)&nbsp;overseeing the evaluation of management and the Board,
and (vi)&nbsp;monitoring and making recommendations to the Board
on matters relating to corporate governance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Committee has not yet adopted a policy
regarding the consideration of director candidates recommended
by security holders because the time for receiving such
recommendations from security holders with respect to
nominations for election at the 2004 Annual Meeting, as set
forth in the Company&#146;s bylaws, had already passed by the
time the Committee was formed. The Committee expects to adopt
such a policy prior to the 2005 Annual Meeting of Stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as may be required by rules promulgated by
NASDAQ or the SEC, currently there are no specific, minimum
qualifications that must be met by each candidate for the Board
of Directors, nor are there any specific qualities or skills
that are necessary for one or more of the members of the Board
of Directors to possess.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Compensation Committee Interlocks And Insider
Participation.</FONT></I><FONT size="2"> Mr.&nbsp;Graham and
Mr.&nbsp;Fiore constitute our Compensation Committee. Neither
Mr.&nbsp;Fiore nor Mr.&nbsp;Graham has ever been an employee of
Alloy. None of our executive officers serve as a member of the
board of directors or compensation committee of any entity that
has any executive officer serving as a member of our Board of
Directors or Compensation Committee.
</FONT>

<P align="left">
<B><FONT size="2">Compensation Of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the fiscal year ended January&nbsp;31, 2004,
our non-employee directors received director&#146;s fees of
$6,000&nbsp;per fiscal quarter plus $1,000&nbsp;per fiscal
quarter for each committee on which a director serves. In
addition, in the fiscal year ended January&nbsp;31, 2004, our
Board authorized the grant of 4,000&nbsp;shares of restricted
stock to each of Messrs. Graham and Monnier under the 1997 Plan,
which shares were issued in March 2004, and are
</FONT>

<P align="center"><FONT size="2">52
</FONT>

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<DIV align="left">
<FONT size="2">subject to the Company&#146;s right of repurchase
in certain circumstances outlined in a restricted stock
agreement between each non-employee director and the Company.
The Company&#146;s right of repurchase with respect to the
4,000&nbsp;shares of restricted stock granted to the
non-employee directors under the 1997 Plan lapses with respect
to 1,000&nbsp;shares on July&nbsp;24, 2004, with respect to an
additional 1,000&nbsp;shares on July&nbsp;24, 2005, with respect
to an additional 1,000&nbsp;shares on July&nbsp;24, 2006, and
with respect to all 4,000&nbsp;shares on July&nbsp;24, 2007. In
addition, our directors may from time to time receive other
periodic grants of options to purchase shares of our Common
Stock. Directors are also reimbursed for reasonable
out-of-pocket costs incurred in attending meetings.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Executive Officers</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain
information regarding our executive officers who are not also
directors. We have employment agreements with our Chief
Executive Officer and Chairman, our Chief Financial Officer and
our Chief Operating Officer. All other executive officers are
at-will employees. We have entered into offer letters with our
Chief Executive Officer of Retail and Direct Consumer Division,
and our Chief Technology Officer.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert E. Bernard
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Executive Officer of Retail and Direct
    Consumer Division
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert L. Bell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Technology Officer
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Robert E. Bernard
</FONT></I><FONT size="2">joined us in October 2003 and serves
as our Chief Executive Officer of Retail and Direct Consumer
Division. From 1996 through 2002, Mr.&nbsp;Bernard served as the
President and Chief Executive Officer of The Limited Stores, and
from 1994 through 1996 he served as the President and Chief
Operating Officer of J. Crew. Mr.&nbsp;Bernard received a
Bachelor of Arts in Broadcast Journalism in 1974, and a Master
of Arts in Communications and Advertising in 1975, both from
Brigham Young University in Provo, Utah.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Robert L. Bell
</FONT></I><FONT size="2">joined us in July 2000 as Chief
Technology Officer. From 1998 to 2000, Mr.&nbsp;Bell served as
Vice President of Customer Development at Edifice Information
Management Systems. Mr.&nbsp;Bell received his B.S. from Denison
University in Granville, Ohio in 1971 and his MS-AP from the
Stevens Institute of Technology in 1978.
</FONT>

<P align="center"><FONT size="2">53
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='114'></A>
</DIV>

<!-- link1 "EXECUTIVE COMPENSATION" -->

<P align="center">
<B><FONT size="2">EXECUTIVE COMPENSATION</FONT></B>

<P align="left">
<B><FONT size="2">Summary Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the total
compensation paid or accrued during fiscal 2003, 2002 and 2001
to our Chief Executive Officer and our four next most highly
compensated executive officers who earned more than $100,000
during fiscal 2003 (the &#147;named executive officers&#148;).
No other executive officer earned greater than $100,000 in
fiscal 2003, 2002 and 2001.
</FONT>

<P align="center">
<B><FONT size="2">Summary Compensation Table(1)</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Annual Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Long-Term Compensation</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restricted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">All Other</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Principal Position</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January 31</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options(#)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew C. Diamond
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">795,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,232</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chief Executive Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,232</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,232</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James K. Johnson,&nbsp;Jr.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">795,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,602</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chief Operating Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,602</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,602</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Samuel A. Gradess
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">795,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert L. Bell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">337,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chief Technology Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">318,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert Bernard
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">600,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,694</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chief Executive Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail and Direct
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consumer Division
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The columns for &#147;Other Annual
    Compensation&#148; and &#147;Payouts&#148; have been omitted
    because there is no compensation required to be reported.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of the dollar value of insurance
    premiums paid by us with respect to a split dollar life
    insurance policy.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of this amount, $100,000 is part of a deferred
    compensation arrangement reported in the &#147;All Other
    Compensation&#148; column.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of this amount, $50,000 is part of a deferred
    compensation arrangement reported in the &#147;All Other
    Compensation&#148; column.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of this amount, Mr.&nbsp;Bernard earned only
    $161,538 since he commenced employment with us in October 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of the approximately $440&nbsp;per diem
    amount we agreed to pay to Mr.&nbsp;Bernard each day he is
    required to stay overnight in the New York City area during his
    first year of employment.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of 100,000&nbsp;shares of restricted
    stock granted on May&nbsp;16, 2003 under the Company&#146;s
    Amended and Restated 1997 Employee, Director and Consultant
    Stock Option and Stock Incentive Plan, and issued on
    March&nbsp;22, 2004. Pursuant to the restricted stock agreement
    under which the grant was made, the Company was given the right
    to repurchase the shares if the grantee&#146;s employment with
    the Company is terminated by the Company For Cause (as defined
    in the restricted stock agreement) or by the grantee for a
    reason other than a Good Reason (as defined in the restricted
    stock agreement), which repurchase right lapsed, with respect to
    50,000&nbsp;shares, on January&nbsp;31, 2004 and will lapse,
    with respect to the remaining 50,000&nbsp;shares on
    January&nbsp;31, 2005.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">54
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">
<B><FONT size="2">Option Grants</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth grants of stock
options granted during the fiscal year ended January&nbsp;31,
2004 to each of the named executive officers. In accordance with
the rules of the SEC, also shown below is the potential
realizable value over the term of the option (the period from
the grant date to the expiration date). This is calculated
assuming that the fair market value of our Common Stock on the
date of grant appreciates at the indicated annual rate, 5% and
10% compounded annually, for the entire term of the option and
that the option is exercised and sold on the last day of its
term for the appreciated stock price. These amounts are based on
certain assumed rates of appreciation and do not represent our
estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of
our Common Stock.
</FONT>

<P align="left">
<B><FONT size="2">Option Grants In Last Fiscal Year</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Individual Grants</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Potential Realizable Value</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">at Assumed Annual Rates</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">of Stock Price Appreciation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underlying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">for Option Terms($)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Employees in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expiration</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/Share)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10%</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew C. Diamond
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James K. Johnson,&nbsp;Jr.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Samuel A. Gradess
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert L. Bell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">02/14/13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert Bernard
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.86</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10/27/13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">525,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,332,369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">25,000 options were granted under the 1997 Plan
    and are non-qualified stock options. 6,250 options will become
    exercisable on each of February&nbsp;14, 2004, 2005, 2006 and
    2007.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">50,000 options will become exercisable on
    October&nbsp;27, 2004, and 25,000 options will become
    exercisable every six months thereafter.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Option Exercises And Year-End Option
Values</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table provides information
regarding the exercises of options by each of the named
executive officers during the fiscal year ended January&nbsp;31,
2004. In addition, this table includes the number of shares
covered by both exercisable and unexercisable stock options as
of January&nbsp;31, 2004 and the values of
&#147;in-the-money&#148; options, which values represent the
positive spread between the exercise price of any such option
and the fiscal year-end value of the Common Stock.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Number of Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value of the Unexercised In-</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Underlying Unexercised</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">The-Money Options at Fiscal</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquired</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options at Fiscal Year-End</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Year-End(2)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">on</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Realized(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercisable</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew C. Diamond
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James K. Johnson Jr.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Samuel A. Gradess
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert R. Bell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert Bernard
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">226,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts shown in this column do not necessarily
    represent actual value realized from the sale of the shares
    acquired upon exercise of the option because in many cases the
    shares are not sold on exercise but continue to be held by the
    executive officer exercising the option. The amounts shown
    represent the difference between the option exercise price and
    the market price on the date of exercise, which is the amount
    that would have been realized if the shares had been sold
    immediately upon exercise.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">55
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The value of unexercised in-the-money options at
    fiscal year-end assumes a fair market value for our Common Stock
    of $5.31&nbsp;per share, which was the closing sale price of our
    Common Stock, as reported on the Nasdaq National Market System
    on January&nbsp;30, 2004.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Employment Contracts and Change of Control
Arrangements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We entered into employment agreements with
Matthew C. Diamond, James K. Johnson and Samuel A. Gradess on
April&nbsp;19, 1999. We entered into new employment agreements
with Messrs.&nbsp;Diamond and Johnson on February&nbsp;1, 2004.
For the fiscal year ended January&nbsp;31, 2004,
Messrs.&nbsp;Diamond, Johnson and Gradess each received annual
base salaries of $400,000. The annual salaries for each of
Messrs.&nbsp;Diamond, Johnson and Gradess have been set by the
Compensation Committee at $400,000 for the fiscal year ending
January&nbsp;31, 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The agreement with Mr.&nbsp;Gradess provides
that, if we terminate him without &#147;Cause,&#148; as defined
in the agreement, he will be entitled to severance pay equal to
his annual base salary, payable in equal monthly installments,
for a period of 12&nbsp;months from the date of termination. If
his termination is voluntary, for cause or as a result of death
or disability, we have no obligation to pay severance to
Mr.&nbsp;Gradess beyond his accrued base salary and bonus up to
the date of termination. Upon a change in control of Alloy, all
of the options granted to Mr.&nbsp;Gradess will accelerate and
vest immediately. As of June&nbsp;30, 2004, Mr.&nbsp;Gradess
held options to purchase&nbsp;250,000&nbsp;shares of our Common
Stock, of which 220,000 were vested.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Agreements with Messrs.&nbsp;Diamond and
Johnson provide that, if we terminate them without
&#147;Cause&#148; (as defined in their agreements) or if they
terminate their employment for &#147;Good Reason&#148; (as
defined in their agreements), we will be obligated to
(i)&nbsp;continue to pay them an amount equal to their base
salary (as then in effect) for a period of one year or until the
end of the term of the employment agreement, whichever is
longer, (ii)&nbsp;a cash bonus equal to the amount of the cash
bonus paid to them in the prior year, and (iii)&nbsp;a
&#147;gross up&#148; amount to offset any excise tax to which
their compensation may be subject. If the termination of
Messrs.&nbsp;Diamond or Johnson are for &#147;Cause&#148;,
without &#147;Good Reason&#148; or as a result of their death or
disability, we have no obligation to pay them severance beyond
their accrued base salary and bonus up to the date of their
termination. All of the options granted to Messrs.&nbsp;Diamond
and Johnson will accelerate and vest immediately, and all
repurchase rights of Alloy with respect to shares of restricted
stock held by Messrs.&nbsp;Diamond and Johnson will lapse
immediately, upon a change of control of Alloy or if
Messrs.&nbsp;Diamond and Johnson are terminated without Cause or
they terminate their employment for Good Reason. As of
June&nbsp;30, 2004, each of Messrs.&nbsp;Diamond and Johnson
held options to purchase&nbsp;250,000&nbsp;shares of our Common
Stock, of which 220,000 were vested.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2000, we entered into an offer letter
with Robert L. Bell, our Chief Technology Officer. During the
fiscal year ended January&nbsp;31, 2004, Mr.&nbsp;Bell&#146;s
annual base salary was increased to $318,000 and he was eligible
for an annual bonus. Mr.&nbsp;Bell&#146;s annual base salary has
not yet been raised for the fiscal year ending January&nbsp;31,
2005. In the offer letter, we agreed to grant Mr.&nbsp;Bell
options to purchase&nbsp;150,000&nbsp;shares of our Common
Stock. If Messrs.&nbsp;Diamond, Johnson and Gradess depart the
management of Alloy, the options granted to Mr.&nbsp;Bell shall
accelerate and vest immediately. As of June&nbsp;30, 2004,
Mr.&nbsp;Bell held options to purchase&nbsp;237,000&nbsp;shares
of our Common Stock, of which options to purchase
133,250&nbsp;shares of our Common Stock were vested as of the
date of this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2003, we entered into an offer letter
with Robert Bernard, our Chief Executive Officer of Retail and
Direct Consumer Division. Mr.&nbsp;Bernard&#146;s annual salary
for the fiscal year ended January&nbsp;31, 2004 was $600,000,
plus a potential bonus. Mr.&nbsp;Bernard&#146;s annual base
salary has not been increased for the fiscal year ending
January&nbsp;31, 2005. In the offer letter, we agreed to grant
to Mr.&nbsp;Bernard options to purchase an aggregate of
200,000&nbsp;shares of our Common Stock, none of which had
vested as of January&nbsp;31, 2004. If Mr.&nbsp;Bernard is
terminated other than for &#147;Cause&#148; (as defined in the
offer letter) prior to October&nbsp;27, 2005, he will be
entitled to receive severance pay equal to the amount of salary
payable to him under the offer letter through October&nbsp;27,
2005.
</FONT>

<P align="center"><FONT size="2">56
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='115'></A>
</DIV>

<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" -->

<P align="center">
<B><FONT size="2">CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS</FONT></B>

<P align="left">
<B><FONT size="2">Common Stock Offering</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2000, we consummated a
financial and strategic arrangement with Liberty Digital, Inc.,
a subsidiary of Liberty Media Group, Inc., pursuant to which we
issued 2,922,694&nbsp;shares of our Common Stock to a subsidiary
of Liberty Digital in exchange for $10&nbsp;million in cash and
837,740&nbsp;shares of Liberty Digital Common Stock. In
addition, in connection with the transaction, we appointed Lee
Masters, Liberty Digital&#146;s President and Chief Executive
Officer, to fill a newly created vacancy on our Board of
Directors. As of March&nbsp;1, 2001, Mr.&nbsp;Masters resigned
from the Board and the directors elected Mr.&nbsp;Edward
Monnier, to serve the remainder of Mr.&nbsp;Masters&#146; term,
which expired last year. Mr.&nbsp;Monnier was re-elected to the
Board of Directors at our 2001 Annual Meeting and has been
nominated for re-election at our 2004 Annual Meeting.
</FONT>

<P align="left">
<B><FONT size="2">Other Transactions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Joseph Diamond, brother of Matthew Diamond, our
Chairman and Chief Executive Officer, is employed as Vice
President, Database Management of our 360 Youth division. Joseph
Diamond&#146;s annual base salary for the fiscal year ended
January&nbsp;31, 2004 was $105,000. He received options to
purchase a total of 4,000&nbsp;shares of our Common Stock during
the fiscal year ended January&nbsp;31, 2004. As of
January&nbsp;31, 2004, Joseph Diamond held options to purchase
an aggregate of 43,848&nbsp;shares of Common Stock, of which
options to purchase&nbsp;29,348&nbsp;shares were exercisable on
such date at varying grant prices.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">David Diamond, another brother of Matthew
Diamond, our Chairman and Chief Executive Officer, is employed
as Director, Human Resources of our Merchandise Division. David
Diamond&#146;s annual base salary for the fiscal year ended
January&nbsp;31, 2004 was $150,000. On January&nbsp;5, 2004, his
date of hire, he received options to
purchase&nbsp;15,000&nbsp;shares of our Common Stock, 3,750 of
which vest on each of January&nbsp;5, 2005, 2006, 2007 and 2008.
</FONT>

<DIV align="left">
<A name='116'></A>
</DIV>

<!-- link1 "PRINCIPAL AND SELLING STOCKHOLDERS" -->

<P align="center">
<B><FONT size="2">PRINCIPAL AND SELLING STOCKHOLDERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables set forth certain
information regarding the beneficial ownership of our common
stock as of June&nbsp;30, 2004 by:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the executive officers named in the summary
    compensation table;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each of our directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">all of our current directors and executive
    officers as a group;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each stockholder known by us to own beneficially
    more than and five percent of our common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each securityholder selling securities in this
    offering.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling
Debentureholders.</FONT></I><FONT size="2"> We originally issued
and sold the debentures to the initial debenture purchasers in
private placement transactions exempt from the registration
requirements of the Securities Act. The debentures were
immediately resold by the initial purchasers in transactions
exempt from registration under Rule&nbsp;144A under the
Securities Act to persons reasonably believed by the initial
purchasers to be &#147;qualified institutional buyers&#148;
under Rule&nbsp;144A. Selling debentureholders, which term
includes their transferees, pledgees, donees and successors, may
from time to time offer and sell the debentures and the common
stock into which the debentures are convertible pursuant to this
prospectus and any applicable prospectus supplement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling
Stockholders.</FONT></I><FONT size="2"> The selling stockholders
acquired and may acquire the shares being registered hereby in
connection with our acquisition of InSite. Selling stockholders,
which term includes their transferees, pledgees, donees and
successors, may from time to time offer and sell the common
stock pursuant to this prospectus and any applicable prospectus
supplement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Selling
Securityholders.</FONT></I><FONT size="2"> As used herein, the
term selling securityholders means the selling debentureholders
and the selling stockholders. The following table sets forth
certain information by the named selling
</FONT>

<P align="center"><FONT size="2">57
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">securityholders, as of the date they completed a
selling securityholder questionnaire (dates ranging from
August&nbsp;20, 2003 to June&nbsp;30, 2004), with respect to the
principal amount of debentures beneficially owned and the number
of shares of common stock issuable upon conversion of those
debentures, for the selling debentureholders, and with respect
to the number of shares of common stock, with respect to the
selling stockholders, that may be offered from time to time
under this prospectus by the selling securityholders named in
the table. This information is based on information provided by
or on behalf of the selling securityholders. The selling
securityholders may offer all, a portion or none of the
securities offered hereby. Because the selling securityholders
may offer all or a portion of their securities, we cannot
estimate the amount of securities that will be held by the
selling securityholders upon termination of any of these sales.
In addition, selling securityholders identified below may have
sold, transferred or otherwise disposed of all or a portion of
their securities since the date on which they provided the
information regarding their securities in transactions exempt
from the registration requirements of the Securities Act. The
percentage of debentures outstanding beneficially owned by each
selling debentureholder is based on $69,300,000 aggregate
principal amount of debentures outstanding. The number of shares
of common stock owned prior to the offering does not include,
with respect to the selling debentureholders, shares of common
stock issuable upon conversion of the debentures.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The percentage of common stock outstanding
beneficially owned by each selling securityholder is based on
42,969,586&nbsp;shares of common stock outstanding on
June&nbsp;30, 2004. The number of shares of common stock
issuable upon conversion of the debentures offered hereby is
based on an initial conversion price of $8.375&nbsp;per share.
This conversion rate is subject to adjustment as described under
&#147;Description of the debentures&nbsp;&#151; Conversion
Rights.&#148; Accordingly, the number of conversion shares may
increase or decrease from time to time. Under the terms of the
indenture, fractional shares will not be issued upon conversion
of the debentures, but will be paid in cash.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beneficial ownership is determined in accordance
with the rules of the SEC and includes voting or investment
power with respect to the securities. Except where indicated in
the footnotes below, the address for each director and executive
officer listed is: c/o&nbsp;Alloy, Inc., 151 West 26th Street,
11th Floor, New York, New York 10001. Shares of Common Stock
that may be acquired by an individual or group within
60&nbsp;days of June&nbsp;30, 2004, pursuant to the exercise of
options or warrants or conversion of convertible securities are
deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
Except as indicated in footnotes to this table, we believe that
the stockholders named in this table have sole voting and
investment power with respect to all shares of Common Stock
shown to be beneficially owned by them based on information
provided to us by such stockholders. Percentage of ownership is
based on
</FONT>

<P align="center"><FONT size="2">58
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">42,969,586&nbsp;shares of Common Stock and
1,340&nbsp;shares of Series&nbsp;B Preferred Stock outstanding
on June&nbsp;30, 2004.
</FONT>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Shares Beneficially Owned</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Series&nbsp;B</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Preferred Shares</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name of Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent(%)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent(%)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Executive Officers and Directors</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew C. Diamond
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,373,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James K. Johnson,&nbsp;Jr.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,373,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Samuel A. Gradess
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,373,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert L. Bell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143,214</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Peter M. Graham
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140,996</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Edward Monnier
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,719</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Anthony N. Fiore
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert Bernard
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All current directors and executive officers as a
    group (9&nbsp;persons)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,440,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.11</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.24</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="17"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Five Percent Stockholders</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fletcher Asset Management, Inc.(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,673,060</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.08</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">LDIG Aloy, Inc.(7)(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,922,694</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.80</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kern Capital Management, LLC(8)(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,846,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.62</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">MLF Investments, LLC(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,789,008</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.15</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">MLF Partners, L.P.(10)(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,042,340</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.41</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Matthew L. Feshbach(12)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,789,008</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.15</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*</FONT></TD>
    <TD align="left">
    <FONT size="2">Less than 1%.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes (i)&nbsp;220,000&nbsp;shares currently
    obtainable upon the exercise of options, and
    (ii)&nbsp;100,000&nbsp;shares granted as restricted stock under
    the Company&#146;s Amended and Restated 1997 Employee, Director
    and Consultant Stock Option and Stock Incentive Plan (as
    amended, the &#147;1997 Plan&#148;), of which the Company has
    the right to repurchase&nbsp;50,000&nbsp;shares under certain
    circumstances outlined in a restricted stock agreement between
    the grantee and the Company. The Company&#146;s repurchase right
    as to these 50,000&nbsp;shares will lapse on January&nbsp;31,
    2005.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes (i)&nbsp;133,250&nbsp;shares currently
    obtainable upon the exercise of options.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of (i)&nbsp;97,501&nbsp;currently
    obtainable upon the exercise of options;
    (ii)&nbsp;938&nbsp;shares obtainable upon the exercise of
    options exercisable within sixty (60)&nbsp;days of June&nbsp;30,
    2004; (iii)&nbsp;30&nbsp;shares of Series&nbsp;B Preferred Stock
    held by the Peter M. Graham Money Purchase Plan&nbsp;&#38; Trust
    and convertible into 30,251&nbsp;shares as of June&nbsp;30,
    2004; (iv)&nbsp;8,306&nbsp;shares subject to a currently
    exercisable warrant held by the Peter M. Graham Money Purchase
    Plan&nbsp;&#38; Trust (Mr.&nbsp;Graham is a trustee of the Peter
    M. Graham Money Purchase Plan&nbsp;&#38; Trust and has voting
    and investment power over its shares); and
    (v)&nbsp;4,000&nbsp;shares granted as restricted stock under the
    1997 Plan, which shares are subject to the Company&#146;s right
    of repurchase in certain circumstances outlined in a restricted
    stock agreement between the grantee and the Company. The
    Company&#146;s right of repurchase with respect to the
    4,000&nbsp;shares of restricted stock granted under the 1997
    Plan lapses with respect to 1,000&nbsp;shares on July&nbsp;24,
    2004, with respect to an additional 1,000&nbsp;shares on
    July&nbsp;24, 2005, with respect to an additional
    1,000&nbsp;shares on July&nbsp;24, 2006, and with respect to all
    4,000&nbsp;shares on July&nbsp;24, 2007. Additionally,
    Mr.&nbsp;Graham has no pecuniary interest in the shares held in
    the Trust and therefore expressly disclaims beneficial ownership
    of those shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of (i)&nbsp;6,250 shares currently
    obtainable upon the exercise of options;
    (ii)&nbsp;469&nbsp;shares obtainable upon the exercise of
    options exercisable within sixty (60)&nbsp;days of June&nbsp;30,
    2004; and (iii)&nbsp;4,000&nbsp;shares granted as restricted
    stock under the 1997 Plan, which shares are subject to the
    Company&#146;s right of repurchase in certain circumstances
    outlined in a restricted stock agreement between the grantee and
    the
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">59
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">Company. The Company&#146;s right of repurchase
    with respect to the 4,000&nbsp;shares of restricted stock
    granted under the 1997 Plan lapses with respect to
    1,000&nbsp;shares on July&nbsp;24, 2004, with respect to an
    additional 1,000&nbsp;shares on July&nbsp;24, 2005, with respect
    to an additional 1,000&nbsp;shares on July&nbsp;24, 2006, and
    with respect to all 4,000&nbsp;shares on July&nbsp;24, 2007.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;
<FONT size="2">(5)&nbsp;Consists of 100 shares owned by
Mr.&nbsp;Bernard&#146;s daughter.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,019,291&nbsp;shares subject to a
    currently exercisable warrant. Fletcher Asset Management, Inc.
    is located at 22 East 67th Street, New York, NY 10021.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Liberty Media Corporation, the ultimate parent of
    LDIG ALOY, Inc., has sole voting and investment power with
    respect to these shares. The address for LDIG ALOY, Inc. is
    12300 Liberty Boulevard, Englewood, CO 80112.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Kern Capital Management, LLC is located at 114
    West 47th Street, Suite&nbsp;1926, New York, NY 10036.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 4,042,340&nbsp;shares owned by MLF
    Partners, L.P., a limited partnership organized and existing
    under the laws of the State of Delaware; and 746,668&nbsp;shares
    owned by MLP Offshore Portfolio Company, L.P., a limited
    partnership organized and existing under the laws of the Cayman
    Islands. MLF Investments, LLC is located at 2401 West Bay Drive,
    Suite&nbsp;124, Largo, Florida 33770.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">MLF Partners, L.P. is located at 2401 West Bay
    Drive, Suite&nbsp;124, Largo, Florida 33770.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 4,042,340&nbsp;shares owned by MLF
    Partners, L.P., a limited partnership organized and existing
    under the laws of the State of Delaware; and 746,668&nbsp;shares
    owned by MLP Offshore Portfolio Company, L.P., a limited
    partnership organized and existing under the laws of the Cayman
    Islands. Matthew Feshbach&#146;s business address is 2401 West
    Bay Drive, Suite&nbsp;124, Largo, Florida 33770.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(12)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The information in this table with respect to
    Fletcher Asset Management, Inc., LDIG Aloy, Inc., Kern Capital
    Management, LLC, MLF Investment, LLC, MLF Partners, L.P. and
    Matthew L. Feshbach is based on filings on Schedule&nbsp;13D or
    Schedule&nbsp;13G made by each with the SEC.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">SELLING SECURITYHOLDERS</FONT></B>

<P align="left">
<B><FONT size="2">Selling Debentureholders</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Principal Amount of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Debentures</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Conversion Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Common</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficially Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Debentures</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficially Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Being Offered</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and Offered Hereby</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Prior to Offering(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Hereby(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding(3)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Alexandra Global Master Fund, Ltd
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,115,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,924,179</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.29</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Arkansas PERS
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,060,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.53</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">126,567</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Boilermakers Blacksmith Pension Trust
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,325,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.91</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">158,208</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Delaware PERS
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,490,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2.15</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">177,910</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Delta Airlines Master Trust
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">600,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.87</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">71,641</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Duke Endowment
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">255,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.37</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,447</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">ICI American Holdings Trust
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">340,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.49</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,597</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Prudential Insurance Co. of America
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">90,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.13</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,746</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Southern Farm Bureau Life Insurance
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">775,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.12</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">92,537</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">State of Oregon/ Equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,700,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.78</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">561,194</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.31</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Syngenta AG
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">250,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.36</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29,850</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Zeneca Holdings Trust
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">465,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.67</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">55,522</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">*</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">All other holders of debentures or future
    transferees, pledgees or donees of such holders(4)(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">19,635,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28.33</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,344,477</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.17</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Indicates a less than 1% interest in common stock.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(a)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Percentages may not sum due to rounding.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Does not include shares of common stock issuable
    upon conversion of the debentures.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">60
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of shares of common stock issuable upon
    conversion of the debentures, assuming a conversion rate of
    119.403&nbsp;shares per $1,000 principal amount of debentures
    (which represents a conversion price of approximately
    $8.375&nbsp;per shares). The conversion price is subject to
    adjustment as described above under &#147;Description of the
    Debentures&nbsp;&#151; Conversion Rate Adjustments.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Calculated based on Rule&nbsp;13d-3(d)(1)(i)
    under the Securities Exchange Act of 1934, as amended, using
    42,969,586&nbsp;shares outstanding on June&nbsp;30, 2004. In
    calculating this amount for each holder, we treated as
    outstanding the number of shares of common stock issuable upon
    conversion of such holder&#146;s debentures. However, we did not
    assume the conversion of any other holder&#146;s debentures.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We will identify additional selling
    securityholders, if any, by prospectus supplement or
    post-effective amendment before they offer or sell their
    securities.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Assumes that all holders of debentures, or any
    future transferees, pledgees, donees or successors of or from
    such holders of debentures, do not beneficially own any common
    stock other than the common stock issuable upon conversion of
    the debentures at the initial conversion rate.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Selling Stockholders</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of Shares</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficially Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares Being</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">After Completion of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Prior to Offering</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Offered</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">This Offering (1)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marc Miller
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">850,009</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New York Small Business Venture Fund, LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,578</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">David Dorfman
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112,721</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mill Neck Capital LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,538</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Peter Connell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Craig Schlanger
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,770</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Neil Miller
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,679</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joan Miller
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#150;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">711</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Indicates a less than 1% interest in common stock.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The numbers assume that the selling stockholders
    have sold all of the shares offered hereby prior to completion
    of this Offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 456,852&nbsp;shares potentially issuable
    in connection with our agreement, as part of our acquisition of
    InSite, to make certain payments to the former stockholders of
    InSite if our stock price, averaged over the 20&nbsp;trading
    days ending on the date prior to the date on which the
    registration statement of which this prospectus is a part
    becomes effective is less than $5.22 (the (&#147;Revaluation
    Shares&#148;) and 249,566&nbsp;shares potentially issuable in
    connection with our agreement, as part of our acquisition of
    InSite, to make certain additional payments, in cash and/or
    stock, of up to $5&nbsp;million in the aggregate to the former
    stockholders of InSite if certain earnings targets are met (the
    &#147;Earn-Out Shares&#148;).
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 61,093&nbsp;shares potentially issuable
    as Earn-Out Shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 48,862&nbsp;shares potentially issuable
    as Earn-Out Shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 33,161&nbsp;shares potentially issuable
    as Earn-Out Shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 8,708&nbsp;shares potentially issuable
    as Revaluation Shares and 7,637&nbsp;shares potentially issuable
    as Earn-Out Shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 7,637&nbsp;shares potentially issuable
    as Earn-Out Shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,393&nbsp;shares potentially issuable
    as Revaluation Shares and 1,222&nbsp;shares potentially issuable
    as Earn-Out Shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 305&nbsp;shares potentially issuable as
    Earn-Out Shares.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Information concerning the selling
securityholders may change from time to time and any changed
information will be set forth in supplements to this prospectus
if and when necessary.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unless set forth below, to our knowledge none of
the selling securityholders has had a material relationship with
us or any of our affiliates within the past three years.
</FONT>

<P align="center"><FONT size="2">61
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<A name='117'></A>
</DIV>

<!-- link1 "DESCRIPTION OF CAPITAL STOCK" -->

<P align="center">
<B><FONT size="2">DESCRIPTION OF CAPITAL STOCK</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The description of our capital stock and certain
provisions of our restated certificate of incorporation, as
amended, and our restated bylaws is a summary and is qualified
in its entirety by the provisions of our restated certificate of
incorporation, as amended and our restated bylaws. The following
summary of certain provisions of our common stock and preferred
stock is not complete and may not contain all the information
you should consider before investing in the debentures or common
stock. We encourage you to read our restated certificate of
incorporation and our shareholder rights agreement that creates
the rights to acquire shares of our preferred stock upon the
occurrence of certain events because they, and not this summary,
define the rights of holders of our common stock and the
associated rights. We have filed our restated certificate of
incorporation and our shareholder rights agreement with the SEC.
See &#147;Where You Can Find More Information&#148; for
information on how to obtain these documents.
</FONT>

<P align="center">
<B><FONT size="2">Description of Common Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The description of our capital stock and certain
provisions of our restated certificate of incorporation, as
amended, and our restated bylaws is a summary and is qualified
in its entirety by the provisions of our restated certificate of
incorporation, as amended and our restated bylaws.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are authorized to issue
200,000,000&nbsp;shares of common stock, $0.01&nbsp;par value
per share. As of June&nbsp;30, 2004, there were approximately
42,969,586&nbsp;shares of common stock outstanding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of our common stock is entitled to one
vote on every matter properly submitted to the stockholders for
their vote. After satisfaction of the dividend rights of holders
of any preferred stock, holders of common stock are entitled to
any dividend declared by our board out of funds legally
available for that purpose. After the payment of liquidation
preferences to holders of any preferred stock, holders of common
stock are entitled to receive, on a pro rata basis, all our
remaining assets available for distribution to stockholders in
the event of our liquidation, dissolution or winding up. Holders
of common stock do not have any preemptive right to become
subscribers or purchasers of additional shares of any class of
our capital stock. The rights, preferences and privileges of
holders of common stock are subject to, and may be injured by,
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
</FONT>

<P align="left">
<B><FONT size="2">Description of Preferred Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are authorized to issue, without stockholder
approval, up to 10,000,000&nbsp;shares of preferred stock,
$0.01&nbsp;par value per share, having rights senior to those of
our common stock. As of June&nbsp;30, 2004, we had authorized
the issuance of 3,000&nbsp;shares of Series&nbsp;B convertible
preferred stock (the &#147;Series&nbsp;B Preferred Stock&#148;),
of which 1,340&nbsp;shares were outstanding,
1,850,000&nbsp;shares of Series&nbsp;A convertible preferred
stock, none of which were outstanding, and 1,000,000&nbsp;shares
of Series&nbsp;C junior participating preferred stock (the
&#147;Series&nbsp;C Preferred Stock&#148;), none of which were
outstanding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each share of Series&nbsp;B Preferred Stock has
an initial stated value and liquidation preference of $10,000,
which accrues interest on a daily basis at a rate of
5.5%&nbsp;per year, compounded quarterly. Except as required by
the Delaware General Corporate Law, the holders of the
Series&nbsp;B Preferred Stock are not entitled to any vote on
matters on which the holders of common stock vote. Each share of
Series&nbsp;B Preferred Stock may be converted into shares of
our common stock at anytime by its holder. The conversion price
initially is $11.70, and is subject to adjustment if we split
our common stock into a greater number of shares, combine our
stock into a lesser number of shares or if we agree to sell more
than 50% of our outstanding shares, any person announces a
tender offer for more than 50% of our outstanding shares or we
agree to sell all or substantially all of our assets. If we
issue, or are deemed to issue, shares of our common stock after
December&nbsp;15, 2002 at a price below the closing bid price of
our common stock on the day immediately prior to issuance or
deemed issuance of such common stock, the conversion price will
be reduced to reflect the weighted-average of the dilution
caused by such issuance or deemed issuance. The holders of the
Series&nbsp;B Preferred Stock may require that we redeem their
shares for cash if our stock is delisted from trading on the
NASDAQ or certain other negative events occur. In addition, we
must
</FONT>

<P align="center"><FONT size="2">62
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">redeem any outstanding shares of the
Series&nbsp;B Preferred Stock on the stated maturity date,
June&nbsp;15, 2005, by converting such shares into shares of
common stock or redeeming them for cash.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors is authorized to issue
additional shares of preferred stock in one or more series and
to fix and designate the rights, preferences, privileges and
restrictions of the preferred stock, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">dividend rights;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">conversion rights;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">voting rights;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">redemption rights and terms of
    redemption;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">liquidation preferences.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board may fix the number of shares
constituting any series and the designations of these series.
The rights, preferences, privileges and restrictions of the
preferred stock of each series will be fixed by a certificate of
designation relating to each series.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our issuance of preferred stock may have the
effect of delaying or preventing a change in control. Our
issuance of preferred stock could decrease the amount of
earnings and assets available for distribution to the holders of
common stock or could adversely affect the rights and powers,
including voting rights, of the holders of common stock. The
issuance of preferred stock could have the effect of decreasing
the market price of our common stock.
</FONT>

<P align="left">
<B><FONT size="2">Delaware Law and Certain Charter and By-law
provisions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provisions of Delaware law and of our
restated certificate of incorporation, as amended, and restated
by-laws discussed below could discourage or make it more
difficult to accomplish a proxy contest or other change in our
management or the acquisition of control by a holder of a
substantial amount of our voting stock. It is possible that
these provisions could make it more difficult to accomplish, or
could deter, transactions that stockholders may otherwise
consider to be in their best interests or our best interests.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Delaware Statutory Business Combinations
Provision.</FONT></I><FONT size="2"> In general,
Section&nbsp;203 prohibits a publicly-held Delaware corporation
from engaging in a &#147;business combination&#148; with an
&#147;interested stockholder&#148; for a period of three years
after the date of the transaction in which the person became an
interested stockholder, unless the business combination is, or
the transaction in which the person became an interested
stockholder was, approved in a prescribed manner or another
prescribed exception applies. For purposes of Section&nbsp;203,
a &#147;business combination&#148; is defined broadly to include
a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and, subject to
certain exceptions, an &#147;interested stockholder&#148; is a
person who, together with his or her affiliates and associates,
owns (or within three years prior, did own) 15% or more of the
corporation&#146;s voting stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Classified Board of
Directors.</FONT></I><FONT size="2"> Our board of directors is
divided into three classes. Each year our stockholders elect the
members of one of the three classes to a three-year term of
office. All directors elected to our classified board of
directors serve until the election and qualification of their
respective successors or their earlier resignation or removal.
Only the board of directors is authorized to create new
directorships and to fill such positions so created and is
permitted to specify the class to which any such new position is
assigned. The person filling such position would serve for the
term applicable to that class. Only the board of directors (or
its remaining members, even if less than a quorum) is empowered
to fill vacancies on the board of directors occurring for any
reason for the remainder of the term of the class of directors
in which the vacancy occurred. Members of the board of directors
may only be removed for cause. These provisions are likely to
increase the time required for stockholders to change the
composition of the board of directors. For example, in general,
at least two annual meetings would be necessary for stockholders
to effect a change in a majority of the members of the board of
directors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Advance Notice Provisions for Stockholder
Proposals and Stockholder Nominations of
Directors.</FONT></I><FONT size="2"> Our restated by-laws
provide that, for nominations to the board of directors or for
other business to be properly
</FONT>

<P align="center"><FONT size="2">63
</FONT>

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<DIV align="left">
<FONT size="2">brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely
notice of the proposal in writing to our Secretary. For an
annual meeting, a stockholder&#146;s notice generally must be
delivered not less than 45&nbsp;days nor more than 75&nbsp;days
prior to the anniversary of the mailing date for proxy materials
relating previous year&#146;s annual meeting or, if the date of
the annual meeting is held more than 30&nbsp;days before or
60&nbsp;days after the date of the previous year&#146;s annual
meeting, such notice must be delivered before the later of
90&nbsp;days prior to the date of the annual meeting and
10&nbsp;days after the date of the meeting is announced
publicly. For a special meeting, the notice must generally be
delivered by the later of 90&nbsp;days prior to the special
meeting or ten days following the day on which public
announcement of the meeting is first made. Detailed requirements
as to the form of the notice and information required in the
notice are specified in our restated by-laws. If it is
determined that business was not properly brought before a
meeting in accordance with our by-law provisions, such business
will not be conducted at the meeting.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Special Meetings of
Stockholders.</FONT></I><FONT size="2"> Special meetings of the
stockholders may be called only by the entire board of directors
pursuant to a resolution adopted by a majority of the total
number of authorized directors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">No Stockholder Action by Written
Consent.</FONT></I><FONT size="2"> Our restated certificate of
incorporation, as amended, does not permit our stockholders to
act by written consent. As a result, any action to be effected
by our stockholders must be effected at a duly called annual or
special meeting of the stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Super-Majority Stockholder Vote Required to
Amend our By-laws.</FONT></I><FONT size="2"> The Delaware
General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter
is required to amend a corporation&#146;s certificate of
incorporation or by-laws, unless the corporation&#146;s
certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. Our restated certificate of
incorporation, as amended, requires a 70% vote for any amendment
to, or repeal of, our restated by-laws by the stockholders. Our
restated by-laws may be amended or repealed by a simple majority
vote of the board of directors.
</FONT>

<P align="left">
<B><FONT size="2">Rights Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;9, 2003, our board of directors
declared a dividend of one preferred stock purchase right (a
&#147;Right&#148;) for each outstanding share of our common
stock, to stockholders of record at the close of business on
April&nbsp;28, 2003 (the &#147;record date&#148;). Each Right
entitles the registered holder to purchase from us a unit
consisting of one one-hundredth of a share (a &#147;Unit&#148;)
of Series&nbsp;C preferred stock, at a purchase price of
$40.00&nbsp;per Unit (the &#147;Purchase Price&#148;), subject
to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the &#147;Rights Agreement&#148;)
between the Company and American Stock Transfer&nbsp;&#38; Trust
Company, as Rights Agent.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Initially, the Rights will be attached to all
common stock certificates representing shares then outstanding,
and no separate Rights certificates will be distributed. The
Rights will separate from the common stock and a
&#147;Distribution Date&#148; will occur upon certain specified
events.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Rights are not exercisable until the
Distribution Date and will expire at the close of business on
April&nbsp;14, 2013, unless we earlier redeem or exchange them
as described below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If any person becomes an Acquiring Person (as
defined in the Rights Agreement), also known as a
&#147;Section&nbsp;11(a)(ii) Event&#148;, each holder of a Right
(other than the Acquiring Person) will thereafter have the right
to receive, upon exercise, that number of shares of common stock
(or, in certain circumstances, cash, property or other of our
securities) which equals the exercise price of the Right divided
by one-half of the current market price (as defined in the
Rights Agreement) of the common stock at the date of the
occurrence of the event.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If, at any time following a
Section&nbsp;11(a)(ii) Event, (i)&nbsp;we are acquired in a
merger or other business combination transaction or
(ii)&nbsp;more than 50% of our assets or earning power is sold
or transferred, each holder of a Right (except Rights which
previously have been voided as set forth above) shall thereafter
have the right to receive, upon exercise, that number of shares
of common stock (or other specified equity securities) of the
acquiring company which equals the exercise price of the Right
divided by one-half of the current market price (as defined in
the Rights Agreement) of such common stock (or other specified
equity securities) at the date of the occurrence of the event.
</FONT>

<P align="center"><FONT size="2">64
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At any time after the occurrence of a
Section&nbsp;11(a)(ii) Event, our Board may exchange the Rights
(other than Rights owned by an Acquiring Person which have
become void), in whole or in part, at an exchange ratio of one
share of common stock, or one Common Stock Equivalent (as
defined in the Rights Agreement), per Right (subject to
adjustment).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Purchase Price payable, and the number of
units of Series&nbsp;C preferred stock or other securities or
property issuable, upon exercise of the Rights are subject to
adjustment from time to time under certain circumstances set
forth in the Rights Agreement. With certain exceptions, no
adjustment in the Purchase Price will be required until
cumulative adjustments amount to at least 1% of the Purchase
Price.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may redeem the Rights in whole, but not in
part, at any time before a Section&nbsp;11(a)(ii) Event, at a
price of $.001&nbsp;per Right (payable in cash, common stock or
other consideration deemed appropriate by our Board).
Immediately upon the action of the Board ordering redemption of
the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.001&nbsp;per Right
redemption price. The redemption price is payable in cash, stock
or other consideration deemed appropriate by the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Until a Right is exercised, the holder thereof,
as such, will have no rights as one of our stockholders,
including, without limitation, the right to vote or to receive
dividends. While the distribution of the Rights will not be
taxable to stockholders or to us, stockholders may, depending
upon the circumstances, recognize taxable income if the Rights
become exercisable for common stock (or other consideration) of
ours or for common stock of the acquiring company as set forth
above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to certain exceptions, any of the
provisions of the Rights Agreement may be amended by the Board
of Directors prior to such time as the Rights are no longer
redeemable.
</FONT>

<P align="left">
<B><FONT size="2">Transfer Agent And Registrar</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">American Stock Transfer&nbsp;&#38; Trust Company
is the transfer agent and registrar for our Common Stock.
</FONT>

<P align="left">
<B><FONT size="2">Nasdaq National Market Listing</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Common Stock is listed on the Nasdaq National
Market under the trading symbol &#147;ALOY&#148;.
</FONT>

<DIV align="left">
<A name='118'></A>
</DIV>

<!-- link1 "DESCRIPTION OF THE DEBENTURES" -->

<P align="center">
<B><FONT size="2">DESCRIPTION OF THE DEBENTURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We issued the debentures under an indenture
between us and Deutsche Bank Trust Company Americas, as trustee.
The terms of the debentures include those stated in the
indenture and those made part of the indenture by reference to
the Trust Indenture Act of 1939. The trustee initially will act
as paying agent, conversion agent and transfer agent under the
indenture.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following summary does not purport to be
complete, and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the debentures and the
indenture. We urge you to read the indenture, the form of the
debentures and the registration rights agreement, which we have
filed with the SEC. See &#147;Where You Can Find More
Information&#148; for information on how to obtain these
documents.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The registered holder of a debenture will be
treated as the owner of it for all purposes. Only registered
holders will have rights under the indenture.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">When we refer to &#147;the company,&#148;
&#147;we,&#148; &#147;our&#148; or &#147;us&#148; in this
section, we refer only to Alloy, Inc., and not our subsidiaries.
</FONT>

<P align="left">
<B><FONT size="2">Brief Description of the Debentures</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The debentures to be offered by the selling
securityholders pursuant to this prospectus:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">are limited to $47,100,000 aggregate principal
    amount;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">bear interest at a rate of 5.375%&nbsp;per year;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">65
</FONT>
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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">bear additional interest, which we refer to as
    &#147;additional interest,&#148; if we fail to comply with
    certain obligations set forth below under
    &#147;&#151;&nbsp;Registration Rights;&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">are senior unsecured obligations, ranking equally
    with all of our existing and future senior unsecured
    indebtedness and senior in right of payment to any subordinated
    indebtedness, but as indebtedness of the Company, the debentures
    are effectively subordinated to all existing and future
    indebtedness and liabilities of our subsidiaries;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">are convertible into our common stock at an
    initial conversion price of $8.375&nbsp;per share, subject to
    adjustment as described below under &#147;&#151;&nbsp;Conversion
    Rights,&#148; in the following circumstances:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(A)&nbsp;if the market price (as defined below)
    of our common stock is above 110% of the conversion price
    measured over a specified number of trading days;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(B)&nbsp;on or before August&nbsp;1, 2018, if the
    ratio of the trading price (as defined below) of the debentures
    to the conversion value of the debentures is below 98% measured
    over a specified number of trading days;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(C)&nbsp;upon the occurrence of specified
    corporate transactions;
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">are redeemable by us at our option at any time
    and from time to time after August&nbsp;1, 2008, in whole or in
    part, at the redemption prices specified below under
    &#147;&#151;&nbsp;Optional Redemption;&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">are subject to repurchase by us at your option on
    August&nbsp;1, 2008, 2013 and 2018 or if a change of control
    occurs as set forth below under &#147;&#151;&nbsp;Repurchase at
    Option of Holders;&#148;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">are due on August&nbsp;1, 2023, unless earlier
    redeemed by us at our option, or converted or repurchased by us
    at your option.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture does not contain any financial
covenants and does not restrict us or our subsidiaries from
paying dividends, incurring additional senior debt or any other
indebtedness or issuing or repurchasing other securities. In
addition, the indenture does not protect the holders in the
event of a highly leveraged transaction or a change in control
except to the extent described below under
&#147;&#151;&nbsp;Repurchase at Option of Holders&nbsp;&#151;
Change of Control Put.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a taxable distribution to holders of our
common stock or other transaction occurs that results in any
adjustment of the conversion price (including an adjustment at
our option), the holders may, in certain circumstances, be
deemed to have received a distribution subject to
U.S.&nbsp;income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a
taxable dividend to the holders of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No sinking fund is provided for the debentures.
The debentures will not be subject to defeasance although we may
redeem the debentures at any time or from time to time after
August&nbsp;1, 2008 as provided below under
&#147;&#151;&nbsp;Optional Redemption.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The debentures are issued only in registered form
in denominations of $1,000 and any integral multiple of $1,000
above that amount. No service charge will be made for any
registration of transfer or exchange of debentures, but we may
require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders may present definitive debentures for
conversion, registration of transfer and exchange, without
service charge, at our office or agency in New York City, which
shall initially be the office or agency of the trustee in New
York City. For information regarding conversion, registration of
transfer and exchange of global securities, see
&#147;&#151;&nbsp;Form, Denomination and Registration.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders may not sell or otherwise transfer the
debentures and the common stock issuable upon conversion of the
debentures except in compliance with the provisions set forth
below under &#147;&#151;&nbsp;Transfer Restrictions.&#148;
</FONT>

<P align="center"><FONT size="2">66
</FONT>

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<P align="left">
<B><FONT size="2">Interest</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The debentures bear interest from July&nbsp;23,
2003 at the rate of 5.375%&nbsp;per year. We also will pay
additional interest if we fail to comply with certain
obligations set forth below under &#147;&#151;&nbsp;Registration
Rights.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will pay interest semiannually on February 1
and August&nbsp;1 of each year to the holders of record at the
close of business on the preceding February 1 and August&nbsp;1,
respectively, beginning February&nbsp;1, 2004. There are two
exceptions to the preceding sentence:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In general, we will not pay accrued and unpaid
    interest on any debentures that are converted into our common
    stock. See &#147;&#151;&nbsp;Conversion Rights.&#148; If a
    holder converts its debentures after a record date for an
    interest payment but prior to the corresponding interest payment
    date, it will receive interest accrued and paid on these
    debentures on the interest payment date, notwithstanding the
    conversion of the debentures prior to such interest payment
    date, because that holder will have been the holder of record on
    the corresponding record date. But, at the time such holder
    surrenders its debentures for conversion, it will be required to
    remit to us an amount equal to the interest that will be paid on
    the interest payment date.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We will pay interest to a person other than the
    holder of record on the record date if holders elect to require
    us to repurchase the debentures on a date that is after the
    record date and on or prior to the corresponding interest
    payment date. In this instance, we will pay accrued and unpaid
    interest on the debentures being repurchased to, but excluding,
    the repurchase date to the same person to whom we will pay the
    principal of these debentures.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as provided below, we will pay interest on:
</FONT>
<P>

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    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the global securities to DTC in immediately
    available funds;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any definitive debentures having an aggregate
    principal amount of $5,000,000 or less by check mailed to the
    holders of these debentures; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any definitive debentures having an aggregate
    principal amount of more than $5,000,000 by wire transfer in
    immediately available funds if requested by holder of those
    debentures.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At maturity, we will pay interest on the
definitive debentures at our office or agency in New York City,
which initially will be the office or agency of the trustee in
New York City.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will pay principal on:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the global securities to DTC in immediately
    available funds;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the definitive debentures at our office or agency
    in New York City, which initially will be the office or agency
    of the trustee in New York City.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
</FONT>

<P align="left">
<B><FONT size="2">Conversion Rights</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">General</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders may convert any outstanding debentures
(or portions of outstanding debentures) into our common stock,
initially at the conversion price of $8.375&nbsp;per share,
equal to a conversion rate of 119.4030&nbsp;shares per $1,000
principal amount of debentures, under the circumstances
summarized below. The conversion price will be subject, however,
to adjustment as described below under
&#147;&#151;&nbsp;Conversion Price Adjustments.&#148; We will
not issue fractional shares of common stock upon conversion of
debentures. Instead, we will pay cash to holders in an amount
equal to the market value of that fractional share based upon
the market price of our common stock on the trading day
immediately preceding the conversion date. You may convert
debentures only in denominations of $1,000 and whole multiples
of $1,000.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders may surrender debentures for conversion
into our common stock prior to the close of business on their
stated maturity date if any of the following conditions are
satisfied:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">during any fiscal quarter, if the market price of
    our common stock for at least 20 trading days in the 30
    consecutive trading-day period ending on the last day of the
    preceding fiscal quarter was more than 110% of the conversion
    price on that thirtieth trading day;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on or before August&nbsp;1, 2018, during the five
    business-day period following any 10 consecutive trading-day
    period in which the average trading price for the debentures for
    that 10 trading-day period was less than 98% of the average
    conversion value, as described below, for the debentures during
    that period;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">upon the occurrence of any of the corporate
    transactions summarized below under &#147;&#151;&nbsp;Conversion
    Upon Specified Corporate Transactions.&#148;
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a holder has exercised such holder&#146;s
right to require us to repurchase such holder&#146;s debentures
as described under &#147;&#151;&nbsp;Repurchase at Option of
Holders,&#148; such holder may convert its debentures into our
common stock only if it withdraws its notice of exercise of
repurchase and convert such holder&#146;s debentures prior to
the close of business on the applicable repurchase date.
However, if such holder is a holder of debentures that have been
called for redemption, it must exercise its conversion rights
prior to the close of business on the second business day
preceding the redemption date, unless we default in payment of
the redemption price.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion Upon Satisfaction of Market
    Price Conditions</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A holder may convert any of its debentures into
our common stock during any fiscal quarter if the market price
of our common stock for at least 20 consecutive trading days in
the 30 trading-day period ending on the last day of the
preceding fiscal quarter exceeds 110% of the conversion price on
that thirtieth trading day. The conversion price per share of
common stock as of any day equals the quotient of the principal
amount of a debenture divided by the number of shares of common
stock issuable upon conversion of such debentures on that day.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or before August&nbsp;1, 2018, a holder also
may convert its debentures into our common stock during the five
business-day period following any 10 consecutive trading-day
period in which the average of the trading prices for the
debentures for that 10 trading-day period was less than 98% of
the average conversion value for the debentures during that
period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Conversion value&#148; is equal to the
product of the market price for our common stock on a given day
multiplied by the then current conversion rate, which is the
number of shares of common stock into which each debentures is
then convertible.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion Upon Specified Corporate
    Transactions</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we distribute to all or substantially all holders
    of our common stock certain rights entitling them to purchase,
    for a period expiring within 60&nbsp;days of the date of
    distribution, common stock at less than the market price of the
    common stock at the time of the announcement of that
    distribution;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we elect to distribute to all or substantially
    all holders of our common stock cash or other assets, debt
    securities or certain rights to purchase our securities, which
    distribution has a per share value exceeding 5% of the market
    price of the common stock on the day preceding the declaration
    date for the distribution;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a change of control as described under
    &#147;&#151;&nbsp;Repurchase at Option of Holders&nbsp;&#151;
    Change of Control Put&#148; occurs but holders of debentures do
    not have the right to require us to repurchase their debentures
    as a result of such change of control because either
    (a)&nbsp;the market price of our common stock for a specified
    period prior to that change of control exceeds a specified level
    or (b)&nbsp;because the consideration received in the change of
    control consists of capital stock that is freely traded and the
    debentures become convertible
    </FONT></TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">into that capital stock, each as more fully
    described under &#147;&#151;&nbsp;Repurchase at Option of
    Holders&nbsp;&#151; Change of Control Put,&#148;
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">then we must notify the holders of debentures at
least 20&nbsp;days prior to the ex-dividend date for the
distribution or within 20 business days of the occurrence of the
change of control, as the case may be. Once we have given that
notice, holders may convert their debentures at any time until
either (a)&nbsp;the earlier of close of business on the business
day prior to the ex-dividend date and our announcement that the
distribution will not take place, in the case of a distribution,
or (b)&nbsp;within 20 business days of the change of control
notice, in the case of a change of control. In the case of a
distribution, no adjustment to the ability of a holder of
debentures to convert will be made if the holder participates or
will participate in the distribution without conversion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, if we are party to a consolidation,
merger or binding share exchange pursuant to which our common
stock will be converted into cash, securities or other property,
a holder may convert debentures at any time from and after the
date which is 15&nbsp;days prior to the anticipated effective
date of the transaction until 15&nbsp;days after the effective
date of the transaction. If we are a party to a consolidation,
merger or binding share exchange pursuant to which our common
stock is converted into cash, securities or other property, then
at the effective time of the transaction, the right to convert
debentures into common stock will be changed into a right to
convert the debentures into the kind and amount of cash,
securities or other property which the holder would have
received if the holder had converted such debentures immediately
prior to the transaction. If the transaction also constitutes a
&#147;change of control&#148; (as defined below) the holder can
require us to repurchase all or a portion of its debentures as
described under &#147;&#151;&nbsp;Repurchase at Option of
Holders&nbsp;&#151; Change of Control Put.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion Procedures</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as provided below, if a holder converts
its debentures into our common stock on any day other than an
interest payment date, such holder will not receive any interest
that has accrued on these debentures since the prior interest
payment date. By delivering to the holder the number of shares
issuable upon conversion, determined by dividing the principal
amount of the debentures being converted by the conversion
price, together with a cash payment, if any, in lieu of
fractional shares, we will satisfy our obligation with respect
to the converted debentures. That is, accrued but unpaid
interest will be deemed to be paid in full rather than canceled,
extinguished or forfeited.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a holder converts after a record date for an
interest payment but prior to the corresponding interest payment
date, such holder will receive on the interest payment date
interest accrued and paid on such debentures, notwithstanding
the conversion of such debentures prior to such interest payment
date, because such holder will have been the holder of record on
the corresponding record date. But, at the time of surrender of
such debentures for conversion, such holder must pay us an
amount equal to the interest that will be paid on the debentures
being converted on the interest payment date. The preceding
sentence, however, does not apply to a holder that converts,
after a record date for an interest payment, but prior to the
corresponding interest payment date, debentures that we call for
redemption prior to such conversion on a redemption date that is
on or prior to the third business day after such interest
payment date. Accordingly, if we call such holder&#146;s
debentures for redemption on a date that is after a record date
for an interest payment but on or prior to the third business
day after the corresponding interest payment date, and prior to
the redemption date such holder chooses to convert your
debentures, such holder will receive on the date that has been
fixed for redemption the amount of interest it would have
received if it had not converted its debentures.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A holder will not be required to pay any transfer
taxes or duties relating to the issuance or delivery of our
common stock if it exercises your conversion rights, but a
holder will be required to pay any transfer tax or duties which
may be payable relating to any transfer involved in the issuance
or delivery of the common stock in a name other than such
holder. If a holder converts any debentures within two years
after its original issuance, the common stock issuable upon
conversion will not be issued or delivered in a name other than
such holder&#146;s unless the applicable restrictions on
transfer have been satisfied. See &#147;&#151;&nbsp;Registration
Rights; Transfer Restrictions.&#148; Certificates representing
shares of common stock will be issued or delivered only after
all applicable transfer taxes and duties, if any, payable by
such holder have been paid.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To convert interests in a global debentures, a
holder must deliver to DTC the appropriate instruction form for
conversion pursuant to DTC&#146;s conversion program. To convert
definitive debentures, a holder will be required to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">complete the conversion notice on the back of the
    debentures (or a facsimile of it);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">deliver the completed conversion notice and the
    debentures to be converted to the specified office of the
    conversion agent;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pay all funds required, if any, relating to
    interest on the debentures to be converted to which such holder
    is not entitled, as described in the second preceding
    paragraph;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pay all transfer taxes or duties, if any, as
    described in the preceding paragraph.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The conversion date will be the date on which all
of the foregoing requirements have been satisfied. The
debentures will be deemed to have been converted immediately
prior to the close of business on the conversion date. We will
deliver, or cause to be delivered, to a converting holder a
certificate for the number of shares of common stock into which
the debentures are converted (and cash in lieu of any fractional
shares) as soon as practicable on or after the conversion date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The conversion agent, which initially will be the
indenture trustee, will, on our behalf, determine if the
debentures are convertible as a result of the market price of
our common stock on a daily basis, in the case of the right to
convert upon satisfaction of market price conditions, and at the
end of each quarter, in the case of the other bases upon which
holders may convert their debentures, in each case, notifying us
and the trustee.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion Price Adjustments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will adjust the initial conversion price for
certain events, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;issuances of our common stock as a
    dividend or distribution on our common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;certain subdivisions, combinations or
    reclassifications of our common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;issuances to all or substantially all
    holders of our common stock of certain rights or warrants to
    purchase our common stock (or securities convertible into our
    common stock) at less than (or having a conversion price per
    share less than) the then current market price of our common
    stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(4)&nbsp;distributions to all or substantially
    all holders of our common stock of shares of our capital stock
    (other than our common stock), evidences of our indebtedness or
    assets (including securities, but excluding:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(A)&nbsp;the rights and warrants to the extent
    included pursuant to paragraph&nbsp;(3)&nbsp;above;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(B)&nbsp;any dividends and distributions in
    connection with a reclassification, change, consolidation,
    merger, combination, sale or conveyance resulting in a change in
    the conversion consideration pursuant to the second succeeding
    paragraph;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(C)&nbsp;any dividends or distributions paid
    exclusively in cash;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(D)&nbsp;common stock distributions to the extent
    included pursuant to paragraph&nbsp;(1)&nbsp;above);
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(5)&nbsp;dividends or other distributions
    consisting exclusively of cash to all or substantially all
    holders of our common stock, other than dividends or
    distributions made in connection with our liquidation,
    dissolution or winding-up;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(6)&nbsp;purchases of our common stock pursuant
    to a tender offer or exchange offer made by us or any of our
    subsidiaries to the extent that the cash and value of any other
    consideration included in the payment per share of common stock
    exceeds the closing sale price per share of our common stock on
    the trading day next succeeding the last date on which tenders
    or exchanges may be made pursuant to such tender or exchange
    offer.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will not make an adjustment in the conversion
price unless such adjustment would require a change of at least
1% in the conversion price then in effect at such time. We will
carry forward and take into account in any subsequent adjustment
any adjustment that would otherwise be required to be made.
Except as stated above, we
</FONT>

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<DIV align="left">
<FONT size="2">will not adjust the conversion price for the
issuance of our common stock or any securities convertible into
or exchangeable for our common stock or carrying the right to
purchase any of the foregoing.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we distribute shares of capital stock of a
subsidiary of ours, the conversion rate will be adjusted, if at
all, based on the market value of the subsidiary stock so
distributed relative to the market value of our common stock, in
each case over a measurement period following the distribution.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we elect to make a distribution described in
paragraph&nbsp;(3)&nbsp;or (4) above, which, in the case of
paragraph&nbsp;(4)&nbsp;above, has a per share value equal to
more than 5% of the market price of our shares of common stock
on the day preceding the declaration date for the distribution,
then, if the distribution would also trigger a conversion right
described above under &#147;&#151;&nbsp;Conversion
Rights&nbsp;&#151; Conversion Upon Specified Corporate
Transactions,&#148; or if the debentures are otherwise
convertible, we will be required to give notice to the holders
of debentures at least 20&nbsp;days prior to the ex-dividend
date for the distribution and, upon the giving of notice, the
debentures may be surrendered for conversion at any time until
the close of business on the business day prior to the
ex-dividend date or until we announce that the distribution will
not take place. No adjustment to the conversion price or the
ability of a holder of a debenture to convert will be made if
the holder will otherwise participate in the distribution
without conversion or in certain other cases.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;reclassify or change our common stock
    (other than changes resulting from a subdivision or
    combination);&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;consolidate or combine with or merge
    into any person or sell or convey to another person all or
    substantially all of our property and assets,
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">and the holders of our common stock receive
stock, other securities or other property or assets (including
cash or any combination thereof) with respect to or in exchange
for their common stock, the holders of the debentures may
convert the debentures into the consideration they would have
received if they had converted their debentures immediately
prior to such reclassification, change, consolidation,
combination, merger, sale or conveyance. We may not become a
party to any such transaction unless its terms are consistent
with the foregoing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may from time to time, to the extent permitted
by law, reduce the conversion price or increase the conversion
rate of the debentures by any amount for any period of at least
20&nbsp;days. In that case, we will give at least
15&nbsp;days&#146; notice of such decrease. We may make such
reductions in the conversion price, in addition to those set
forth above, as our board of directors deems advisable to avoid
or diminish any income tax to holders of our common stock
resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income
tax purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we adjust the conversion price or conversion
ratio pursuant to the above provisions, we will issue a press
release through Dow Jones&nbsp;&#38; Company, Inc. or Bloomberg
Business News containing the relevant information and make this
information available on our website or through another public
medium as we may use at that time.
</FONT>

<P align="left">
<B><FONT size="2">Optional Redemption</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The debentures will not be redeemable at our
option prior to August&nbsp;1, 2008.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After August&nbsp;1, 2008, we may redeem all or a
part of the debentures upon not less than 30 nor more than
60&nbsp;days&#146; notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus
</FONT>

<P align="center"><FONT size="2">71
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">accrued and unpaid interest, if any, on the
debentures redeemed, to the applicable redemption date, if
redeemed during the twelve-month period beginning on
August&nbsp;1 of the years indicated below:
</FONT>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="83%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percentage</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2009
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2010
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2011 and thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If less than all of the debentures are to be
redeemed at any time, the trustee will select debentures for
redemption as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">if the debentures are listed on any national
    securities exchange, in compliance with the requirements of the
    principal national securities exchange on which the debentures
    are listed;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">if the debentures are not listed on any national
    securities exchange, on a pro rata basis, by lot or by such
    method as the trustee deems fair and appropriate.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No debenture of $1,000 principal amount or less
can be redeemed in part. Notices of redemption will be mailed by
the trustee to each holder of debentures to be redeemed at such
holder&#146;s registered address. Notices of redemption may not
be conditional.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If any debentures are to be redeemed in part
only, the notice of redemption that relates to those debentures
in principal amount equal to the unredeemed portion of the
original debentures will be issued in the name of the holder of
debentures upon cancellation of the original debentures.
Debentures called for redemption become due on the day fixed for
redemption. On and after the redemption date, interest ceases to
accrue on debentures or portions of them called for redemption.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any notice of redemption shall include a
(i)&nbsp;statement regarding the right of each holder to convert
its debentures and (ii)&nbsp;on what date the averaging period
shall commence.
</FONT>

<P align="left">
<B><FONT size="2">Repurchase at Option of Holders</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Optional Put</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;1, 2008, 2013 and 2018, each
holder may require us to repurchase for cash all of such
holder&#146;s debentures not previously called for redemption,
or any portion of those debentures that is equal to $1,000 or a
whole multiple of $1,000, at a repurchase price equal to 100% of
the principal amount of those debentures plus any accrued and
unpaid interest, on those debentures to, but excluding, the
repurchase date. Holders may submit their debentures for
repurchase to the paying agent at any time from the opening of
business on the date that is 20 business days prior to the
applicable repurchase date until the close of business on the
repurchase date.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Change of Control Put</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a change of control occurs, each holder may
require us to repurchase for cash all of such holder&#146;s
debentures not previously called for redemption, or any portion
of those debentures that is equal to $1,000 or a whole multiple
of $1,000, at a repurchase price equal to 100% of the principal
amount of the debentures to be repurchased plus any accrued and
unpaid interest to, but excluding, the repurchase date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A &#147;change of control&#148; will be deemed to
have occurred at such time after the original issuance of the
debentures when any of the following has occurred:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;the acquisition by any person, including
    any syndicate or group deemed to be a &#147;person&#148; under
    Section&nbsp;13(d)(3) of the Exchange Act, of beneficial
    ownership, directly or indirectly, through a purchase, merger or
    other acquisition transaction or series of purchases, mergers or
    other acquisition transactions of shares of our capital stock
    entitling that person to exercise 50% or more of the total
    voting power of all shares of our capital stock entitled to vote
    generally in elections of directors, other than any acquisition
    by us, any of our subsidiaries or any of our employee benefit
    plans (except that such person shall be deemed to
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">72
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">have beneficial ownership of all securities that
    such person has the right to acquire, whether such right is
    currently exercisable or is exercisable only upon the occurrence
    of a subsequent condition);&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;the first day on which a majority of the
    members of our board of directors are not continuing
    directors;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;the consolidation or merger of us with
    or into any other person, any merger of another person into us,
    or any conveyance, transfer, sale, lease or other disposition of
    all or substantially all of our properties and assets to another
    person, other than:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(A)&nbsp;any transaction:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;that does not result in any
    reclassification, conversion, exchange or cancellation of
    outstanding shares of our capital stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;pursuant to which holders of our
    capital stock immediately prior to such transaction have the
    right to exercise, directly or indirectly, 50% or more of the
    total voting power of all shares of our capital stock entitled
    to vote generally in elections of directors of the continuing or
    surviving person immediately after giving effect to such
    issuance;&nbsp;or
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(B)&nbsp;any merger solely for the purpose of
    changing our jurisdiction of incorporation and resulting in a
    reclassification, conversion or exchange of outstanding shares
    of common stock solely into shares of common stock of the
    surviving entity.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">However, a change of control will be deemed not
to have occurred if:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;the market price per share of our common
    stock for any five trading days within:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(A)&nbsp;the period of 10 consecutive trading
    days ending immediately after the later of the change of control
    or the public announcement of the change of control, in the case
    of a change of control under
    paragraph&nbsp;(1)&nbsp;above;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(B)&nbsp;the period of 10 consecutive trading
    days ending immediately before the change of control, in the
    case of a change of control under paragraph&nbsp;(2)&nbsp;or
    (3)&nbsp;above,
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">equals or exceeds 110% of the conversion price of
the debentures in effect on each such trading day;&nbsp;or
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;at least 90% of the consideration in the
    transaction or transactions constituting a change of control
    consists of shares of common stock traded or to be traded
    immediately following such change of control on a national
    securities exchange or the Nasdaq National Market and, as a
    result of the transaction or transactions, the debentures become
    convertible solely into such common stock (and any rights
    attached thereto).
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beneficial ownership shall be determined in
accordance with Rules&nbsp;13d-3 and 13d-5 under the Exchange
Act. The term &#147;person&#148; includes any syndicate or group
which would be deemed to be a &#147;person&#148; under
Section&nbsp;13(d)(3) under the Exchange Act, while the term
&#147;continuing director&#148; means, as of any date of
determination, any member of the board of directors who:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">was a member of the board of directors on
    July&nbsp;23, 2003;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">was nominated for election or elected to the
    board of directors with the approval of a majority of the
    continuing directors who were members of the board at the time
    of new director&#146;s nomination or election.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The definition of &#147;change of control&#148;
includes a phrase relating to the conveyance, sale, transfer,
lease or disposition of &#147;all or substantially all&#148; of
our properties and assets. There is no precise, established
definition of the phrase &#147;substantially all&#148; under New
York law, which is the law governing the indenture and the
debentures. Accordingly, there may be uncertainty as to whether
or not a change of control may have occurred and, therefore, as
to whether or not the holders of debentures will have the right
to require us to repurchase their debentures.
</FONT>

<P align="center"><FONT size="2">73
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Repurchase Right Procedures</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Within 20 business days after the occurrence of a
change of control, we will be required to give notice to all
holders of the occurrence of the change of control and of their
resulting repurchase right. The repurchase date will be 20
business days after the date we give that notice. With respect
to other repurchase rights, we will be required to give notice
20 business days prior to any repurchase date to all holders.
The notices will be delivered to the holders at their addresses
shown in the register of the registrar and to beneficial owners
as required by applicable law stating, among other things, the
procedures that holders must follow to require us to repurchase
their debentures as described below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If holders have the right to cause us to
repurchase their debentures as described above, we will issue a
press release through Dow Jones&nbsp;&#38; Company, Inc. or
Bloomberg Business News containing the relevant information and
make this information available on our website or through
another public medium as we may use at that time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To elect to require us to repurchase debentures,
each holder must deliver the repurchase notice so that it is
received by the paying agent no later than the close of business
on the repurchase date and must state certain information,
including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the certificate numbers of the holder&#146;s
    debentures to be delivered for repurchase;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the portion of the principal amount of debentures
    to be repurchased, which must be $1,000 or an integral multiple
    of $1,000;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that the debentures are to be repurchased by us
    pursuant to the applicable provision of the indenture.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A holder may withdraw any repurchase notice by
delivering a written notice of withdrawal to the paying agent
prior to the close of business on the repurchase date. The
notice of withdrawal must state certain information, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;the principal amount of debentures being
    withdrawn;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;the certificate numbers of the
    debentures being withdrawn; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;the principal amount, if any of the
    debentures that remain subject to the repurchase notice.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Exchange Act requires the dissemination of
certain information to security holders and that an issuer
follow certain procedures if an issuer tender offer occurs,
which may apply if the repurchase rights summarized above become
available to holders of the debentures. In connection with any
offer to require us to repurchase debentures as summarized above
we will, to the extent applicable:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;comply with the provisions of
    Rule&nbsp;13e-4, Rule&nbsp;14e-1 and any other tender offer
    rules under the Exchange Act which may then be
    applicable;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;file a Schedule&nbsp;TO or any other
    required schedule or form under the Exchange Act.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our obligation to pay the repurchase price for
debentures for which a repurchase notice has been delivered and
not validly withdrawn is conditioned upon the holder delivering
the debentures, together with necessary endorsements, to the
paying agent at any time after delivery of the repurchase
notice. We will cause the repurchase price for the debentures to
be paid promptly following the later of the repurchase date or
the time of delivery of the debentures, together with such
endorsements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the paying agent holds money sufficient to pay
the repurchase price of the debentures for which a repurchase
notice has been given on the business day following the
repurchase date in accordance with the terms of the indenture,
then, immediately after the repurchase date, the debentures will
cease to be outstanding and interest on the debentures will
cease to accrue, whether or not the debentures are delivered to
the paying agent. Thereafter, all other rights of the holder
shall terminate, other than the right to receive the repurchase
price upon delivery of the debentures.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may, to the extent permitted by applicable law
and agreements governing our other debt, if any, at any time
purchase the debentures in the open market or by tender at any
price or by private agreement. Any debentures so purchased by us
may, to the extent permitted by applicable law, be reissued or
resold or may be
</FONT>

<P align="center"><FONT size="2">74
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">surrendered to the trustee for cancellation. Any
debentures surrendered to the trustee may not be reissued or
resold and will be canceled promptly.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Limitations on Repurchase
    Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The repurchase rights described above may not
necessarily protect holders of the debentures if a highly
leveraged or another transaction involving us occurs that may
adversely affect holders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our ability to repurchase debentures upon the
occurrence of a change in control is subject to important
limitations. The occurrence of a change of control could cause
an event of default under, or be prohibited or limited by, the
terms of our then existing debt, if any. Further, we cannot give
any assurance that, in that event, we would have the financial
resources, or would be able to arrange financing, to pay the
repurchase price for all the debentures that might be delivered
by holders of debentures seeking to exercise the repurchase
right. Any failure by us to repurchase the debentures when
required following a change of control would result in an event
of default under the indenture. Any such default may, in turn,
cause a default under our other debt, if any. In addition, our
ability to repurchase debentures for cash may be limited by
restrictions on our ability to obtain funds for such repurchase
through dividends from our subsidiaries and other provisions in
the agreements governing our other debt, if any.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The change of control repurchase provision of the
debentures may, in certain circumstances, make more difficult or
discourage a takeover of our company. The change of control
repurchase feature, however, is not the result of our knowledge
of any specific effort to accumulate shares of our common stock,
to obtain control of us by means of a merger, tender offer
solicitation or otherwise or by management to adopt a series of
anti-takeover provisions. Instead, the change of control
purchase feature is a typical term contained in many convertible
securities similar to the debentures.
</FONT>

<P align="left">
<B><FONT size="2">Consolidation, Merger and Assumption</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture provides that we may not
consolidate with or merge into any other person or convey,
transfer, sell, lease or otherwise dispose of all or
substantially all of our properties and assets to another person
unless, among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the resulting, surviving or transferee person is
    organized and existing under the laws of the United States, any
    state thereof or the District of Columbia;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that person assumes all of our obligations under
    the indenture and the debentures;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Alloy or such successor is not then or
    immediately thereafter in default under the indenture and no
    event which, after notice or lapse of time, would become an
    event of default under the indenture, shall have occurred and be
    continuing.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Events of Default</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the following constitutes an event of
default under the indenture:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;Our failure to pay when due the
    principal of or premium, if any, on any of the debentures at
    maturity, upon redemption or exercise of a repurchase right or
    otherwise;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;our failure to pay an installment of
    interest on any of the debentures for 30&nbsp;days after the
    date when due;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;our failure to perform or observe any
    other term, covenant or agreement contained in the debentures or
    the indenture for a period of 60&nbsp;days after written notice
    of such failure, requiring us to remedy the same, shall have
    been given to us by the trustee or to us and the trustee by the
    holders of at least 25% in aggregate principal amount of the
    debentures then outstanding;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(4)&nbsp;our default under any indebtedness for
    money borrowed by us or any of our subsidiaries that is a
    &#147;significant subsidiary&#148; or any group of two or more
    subsidiaries that, taken as a whole, would constitute a
    significant subsidiary, the aggregate outstanding principal
    amount of which is in an amount in excess of
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">75
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">$15&nbsp;million, for a period of 30&nbsp;days
    after written notice to us by the trustee or to us and the
    trustee by holders of at least 25% in aggregate principal amount
    of the debentures then outstanding, which default:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(A)&nbsp;is caused by our failure to pay when due
    principal or interest on such indebtedness by the end of the
    applicable grace period, if any, unless such indebtedness is
    discharged;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(B)&nbsp;results in the acceleration of such
    indebtedness, unless such acceleration is waived, cured,
    rescinded or annulled;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(5)&nbsp;certain events of bankruptcy, insolvency
    or reorganization with respect to us or any of our subsidiaries
    that is a significant subsidiary or any group of two or more
    subsidiaries that, taken as a whole, would constitute a
    significant subsidiary.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture provides that the trustee will,
within 90&nbsp;days of the occurrence of a default, give to the
registered holders of the debentures notice of all uncured
defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that
the withholding of such notice is in the best interest of such
registered holders, except in the case of a default in the
payment of the principal of, or premium, if any, or interest on,
any of the debentures when due or in the payment of any
repurchase obligation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If an event of default specified in
clause&nbsp;(5) above occurs and is continuing with respect to
us, then automatically the principal of all the debentures and
the interest thereon shall become immediately due and payable.
If an event of default shall occur and be continuing, other than
with respect to clause&nbsp;(5) above with respect to us (the
default not having been cured or waived as provided under
&#147;&#151;&nbsp;Modifications and Amendments&#148; below), the
trustee or the holders of at least 25% in aggregate principal
amount of the debentures then outstanding may declare the
debentures due and payable at their principal amount together
with accrued interest, and thereupon the trustee may, at its
discretion, proceed to protect and enforce the rights of the
holders of debentures by appropriate judicial proceedings. Such
declaration may be rescinded or annulled with the written
consent of the holders of a majority in aggregate principal
amount of the debentures then outstanding upon the conditions
provided in the indenture.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture contains a provision entitling the
trustee, subject to the duty of the trustee during default to
act with the required standard of care, to be indemnified by the
holders of debentures before proceeding to exercise any right or
power under the indenture at the request of such holders. The
indenture provides that the holders of a majority in aggregate
principal amount of the debentures then outstanding through
their written consent may direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred upon the
trustee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are required to furnish annually to the
trustee a statement as to the fulfillment of our obligations
under the indenture.
</FONT>

<P align="left">
<B><FONT size="2">Modifications and Amendments</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Changes Requiring Approval of Each Affected
    Holder</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture, including the terms and conditions
of the debentures, is not able to be modified or amended without
the written consent or the affirmative vote of the holder of
each debentures affected by such change to:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;change the maturity of the principal of
or the date any installment of interest is due on any debentures;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;reduce the principal amount or
repurchase price of or redemption price of or interest on any
debentures;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(3)&nbsp;change the currency of payment of such
debentures or interest thereon;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(4)&nbsp;alter the manner of calculation or rate
of accrual of interest on any debentures or extend the payment
of any such amount;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(5)&nbsp;impair the right to institute suit for
the enforcement of any payment on or with respect to any
debentures;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(6)&nbsp;modify our obligations to maintain an
office or agency in New York, New York;
</FONT>

<P align="center"><FONT size="2">76
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(7)&nbsp;except as otherwise permitted or
contemplated by provisions concerning corporate reorganizations,
adversely affect the repurchase rights or the conversion rights
of holders of the debentures;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(8)&nbsp;change redemption provisions to the
indenture in a manner adverse to the holders of
debentures;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(9)&nbsp;reduce the percentage in aggregate
principal amount of debentures outstanding necessary to modify
or amend the indenture or to waive any past default.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Changes Requiring Majority
    Approval</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as otherwise provided in respect of
changes requiring the approval of each affected holder and
changes requiring no approval, the indenture, including the
terms and conditions of the debentures, may be modified or
amended either:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;with the written consent of the holders
of at least a majority in aggregate principal amount of the
debentures at the time outstanding;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;by the adoption of a resolution at a
meeting of holders by at least a majority in aggregate principal
amount of the debentures represented at such meeting.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Changes Requiring No Approval</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture, including the terms and conditions
of the debentures, may be modified or amended by us and the
trustee, without the consent of the holder of any debentures,
for the purposes of, among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;adding to our covenants for the benefit
    of the holders of debentures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;surrendering any right or power
    conferred upon us;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;providing for conversion rights of
    holders of debentures in the event of any reclassification or
    change of our common stock or any consolidation, merger or sale
    of all or substantially all of our assets occurs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(4)&nbsp;providing for the assumption of our
    obligations to the holders of debentures in the case of a
    merger, consolidation or conveyance, sale, transfer or lease of
    all or substantially all of our assets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(5)&nbsp;reducing the conversion price, provided
    that the reduction will not adversely affect the interests of
    the holders of debentures (after taking into account tax and
    other consequences of such reduction);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(6)&nbsp;complying with the requirements of the
    SEC in order to effect or maintain the qualification of the
    indenture under the Trust Indenture Act of 1939, as amended;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(7)&nbsp;making any changes or modifications
    necessary in connection with the registration of the debentures
    under the Securities Act as contemplated in the resale
    registration rights agreement, provided that such change or
    modification does not, in the good faith opinion of our board of
    directors and the trustee, adversely affect the interests of the
    holders of debentures in any material respect;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(8)&nbsp;curing any ambiguity or correcting or
    supplementing any defective provision contained in the indenture;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(9)&nbsp;adding guarantees with respect to the
    debentures;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(10)&nbsp;adding or modifying any other
    provisions with respect to matters or questions arising under
    the indenture which we and the trustee may deem necessary or
    desirable and which will not adversely affect in any material
    respect the interests of the holders of debentures.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Governing Law</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture and the debentures are governed by,
and will be construed in accordance with, the law of the State
of New York.
</FONT>

<P align="center"><FONT size="2">77
</FONT>

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<P align="left">
<B><FONT size="2">Information Concerning the Trustee and the
Transfer Agent</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deutsche Bank Trust Company Americas, as trustee
under the indenture, initially has been appointed by us as
paying agent, conversion agent, registrar and custodian with
regard to the debentures. American Stock Transfer&nbsp;&#38;
Trust Company is the transfer agent and registrar for our common
stock. The trustee or its affiliates may from time to time in
the future provide banking and other services to us in the
ordinary course of their business.
</FONT>

<P align="left">
<B><FONT size="2">Registration Rights; Transfer
Restrictions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have entered into a resale registration rights
agreement with the initial purchasers for the benefit of the
holders of the debentures under which we, at our expense, for
the benefit of the holders, filed with the SEC a shelf
registration statement, of which this prospectus is a part,
covering the resale of the debentures and the shares of stock
issuable upon conversion of the debentures. Pursuant to the
registration rights agreement, we have agreed to keep the shelf
registration statement effective until the earliest of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">August&nbsp;20, 2005, which is two years after
    the last date of original issuance of any of the debentures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the date when the holders of the debentures and
    the common stock issuable upon conversion of the debentures are
    able to sell all such securities immediately without restriction
    pursuant to the volume limitation provisions of Rule&nbsp;144
    under the Securities Act; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the date when all of the debentures and the
    common stock into which the debentures are convertible that are
    owned by the holders who complete and deliver the selling
    securityholder notice and questionnaire described below are
    registered under the shelf registration statement and disposed
    of in accordance with the shelf registration statement.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each holder wishing to sell debentures or common
stock pursuant to the prospectus must notify us not later than
three business days prior to any proposed sale by that holder
pursuant to the shelf registration statement. This notice will
be effective for five business days. We may suspend the
holder&#146;s use of the prospectus for a reasonable period not
to exceed 45&nbsp;days in any 90-day period, and not to exceed
an aggregate of 90&nbsp;days in any 360-day period, if:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;the prospectus would, in our judgment,
contain a material misstatement or omission as a result of an
event that has occurred and is continuing;&nbsp;and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;we reasonably determine that the
disclosure of this material non-public information would have a
material adverse effect on us and our subsidiaries taken as a
whole.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">However, if the disclosure relates to a
previously undisclosed proposed or pending material business
transaction, the disclosure of which would impede our ability to
consummate such transaction, we may extend the suspension period
from 45&nbsp;days to 60&nbsp;days. Each holder, by its
acceptance of a debenture, agrees to hold any communication by
us in response to a notice of a proposed sale in confidence.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;we have not filed the shelf registration
statement with the SEC prior to or on the 90th day following the
earliest date of original issuance of any of the debentures;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;the shelf registration statement has not
been declared effective prior to or on the 180th day following
the earliest date of original issuance of any of the
debentures;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(3)&nbsp;any registration statement ceases to be
effective or fails to be usable and (a)&nbsp;we do not cure the
registration statement within five business days by a
post-effective amendment or a report filed pursuant to the
Exchange Act or (b)&nbsp;if applicable, we do not terminate the
suspension period, described in the preceding paragraph, by the
45th or 60th day, as the case may be (each, a &#147;registration
default&#148;),
</FONT>

<P align="left">
<FONT size="2">then additional amounts will accrue as liquidated
damages on the debentures, from and including the day following
the registration default to but excluding the day on which the
registration default has been cured. Additional amounts will be
paid semiannually in arrears, with the first semiannual payment
due on the first
</FONT>

<P align="center"><FONT size="2">78
</FONT>

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<DIV align="left">
<FONT size="2">interest payment date, as applicable, following
the date on which such liquidated damages begin to accrue, and
will accrue at a rate per year equal to:
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;an additional 0.25% of the principal
amount to and including the 90th day following such registration
default;&nbsp;and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;an additional 0.50% of the principal
amount from and after the 91st&nbsp;day following such
registration default.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In no event will additional amounts accrue at a
rate per year exceeding 0.75%. If a holder has converted some or
all of its debentures into common stock, the holder will be
entitled to receive equivalent amounts based on the principal
amount of the debentures converted.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For holders of securities who or which are not
named as a selling securityholder in this prospectus at the time
of effectiveness of the shelf registration statement, we will
prepare and file, if required, as promptly as practicable after
the receipt of the holders&#146; selling securityholder
questionnaires, amendments to the shelf registration statement
containing this prospectus and/or supplements to this prospectus
as necessary to permit such holders to deliver this prospectus,
including any supplements, to purchasers of the offered
securities, subject to our right to suspend the use of this
prospectus as described above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The above summary of some of the provisions of
the registration rights agreement is subject to, and is
qualified in its entirety by reference to, all the provisions of
the registration rights agreement, a copy of which has been
filed as an exhibit to the registration statement of which this
prospectus forms a part.
</FONT>

<P align="left">
<B><FONT size="2">Form, Denomination and Registration</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Denomination and Registration</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The debentures will be issued in fully registered
form, without coupons, in denominations of $1,000 principal
amount and whole multiples of $1,000.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Global Securities; Book-Entry
    Form</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as provided below, the debentures are and
will be evidenced by one or more global securities deposited
with the trustee as custodian for DTC, and registered in the
name of Cede&nbsp;&#38; Co. as DTC&#146;s nominee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Record ownership of the global securities may be
transferred, in whole or in part, only to another nominee of DTC
or to a successor of DTC or its nominee, except as set forth
below. A holder may hold its interests in a global security
directly through DTC if such holder is a participant in DTC, or
indirectly through organizations which are direct DTC
participants if such holder is not a participant in DTC.
Transfers between direct DTC participants will be effected in
the ordinary way in accordance with DTC&#146;s procedures and
will be settled in same-day funds. Holders may also beneficially
own interests in the global securities held by DTC through
certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship
with a direct DTC participant, either directly or indirectly.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">So long as Cede&nbsp;&#38; Co., as nominee of
DTC, is the registered owner of the global securities,
Cede&nbsp;&#38; Co. for all purposes will be considered the sole
holder of the global securities. Except as provided below,
owners of beneficial interests in the global securities:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">will not be entitled to have certificates
    registered in their names;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">will not receive or be entitled to receive
    physical delivery of certificates in definitive form;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">will not be considered holders of the global
    securities.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The laws of some states require that certain
persons take physical delivery of securities in definitive form.
Consequently, the ability of an owner of a beneficial interest
in a global security to transfer the beneficial interest in the
global security to such persons may be limited.
</FONT>

<P align="center"><FONT size="2">79
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will wire, through the facilities of the
trustee, payments of principal and interest payments on the
global securities to Cede&nbsp;&#38; Co., the nominee of DTC, as
the registered owner of the global securities. Neither we, the
trustee nor any paying agent will have any responsibility or be
liable for paying amounts due on the global securities to owners
of beneficial interests in the global securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have been informed that it is DTC&#146;s
current practice, upon receipt of any payment of principal of
and interest on the global securities, to credit
participants&#146; accounts on the payment date in amounts
proportionate to their respective beneficial interests in the
debentures represented by the global securities, as shown on the
records of DTC, unless DTC believes that it will not receive
payment on the payment date. Payments by DTC participants to
owners of beneficial interests in debentures represented by the
global securities held through DTC participants will be the
responsibility of DTC participants, as is now the case with
securities held for the accounts of customers registered in
&#147;street name.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a holder would like to convert such
holder&#146;s debentures into common stock pursuant to the terms
of the debentures, such holder should contact its broker or
other direct or indirect DTC participant to obtain information
on procedures, including proper forms and cut-off times, for
submitting those requests.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because DTC can only act on behalf of DTC
participants, who in turn act on behalf of indirect DTC
participants and other banks, a holder&#146;s ability to pledge
its interest in the debentures represented by global securities
to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest,
may be affected by the lack of a physical certificate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Neither we nor the trustee (nor any registrar,
paying agent or conversion agent under the indenture) will have
any responsibility for the performance by DTC or direct or
indirect DTC participants of their obligations under the rules
and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder
of debentures, including, without limitation, the presentation
of debentures for conversion as described below, only at the
direction of one or more direct DTC participants to whose
account with DTC interests in the global securities are credited
and only for the principal amount of the debentures for which
directions have been given.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">DTC has further advised us as follows: DTC is a
limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a
&#147;clearing corporation&#148; within the meaning of the
Uniform Commercial Code and a &#147;clearing agency&#148;
registered pursuant to the provisions of Section&nbsp;17A of the
Exchange Act. DTC was created to hold securities for DTC
participants and to facilitate the clearance and settlement of
securities transactions between DTC participants through
electronic book-entry changes to the accounts of its
participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and
may include certain other organizations, such as the initial
purchaser of the debentures. Certain DTC participants or their
representatives, together with other entities, own DTC. Indirect
access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or
maintain a custodial relationship with, a participant, either
directly or indirectly.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although DTC has agreed to the foregoing
procedures in order to facilitate transfers of interests in the
global securities among DTC participants, it is under no
obligation to perform or continue to perform such procedures,
and such procedures may be discontinued or modified at any time.
If DTC is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by us
within 90&nbsp;days, we will cause debentures to be issued in
definitive form in exchange for the global securities. None of
us, the trustee or any of our or its agents will have any
responsibility for the performance by DTC, direct or indirect
DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments
made on account of, beneficial ownership interests in global
securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">According to DTC, the foregoing information with
respect to DTC has been provided to its participants and other
members of the financial community for informational purposes
only and is not intended to serve as a representation, warranty
or contract modification of any kind.
</FONT>

<P align="center"><FONT size="2">80
</FONT>

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<DIV align="left">
<A name='119'></A>
</DIV>

<!-- link1 "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" -->

<P align="center">
<B><FONT size="2">CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of the material US
federal income tax consequences relating to the purchase,
ownership, and disposition of the debentures and of common stock
into which debentures may be converted, but does not purport to
be a complete analysis of all the potential tax consequences
that may be material to an investor based on such
investor&#146;s particular tax situation (such as the
alternative minimum tax provisions of the Code). This summary is
based on the provisions of the Internal Revenue Code of 1986, as
amended (the &#147;Code&#148;), the applicable Treasury
Regulations, promulgated or proposed thereunder (&#147;Treasury
Regulations&#148;), judicial authority and current
administrative rulings and practice as of the date of this
offering memorandum. All of those authorities are subject to
change, possibly on a retroactive basis, or differing
interpretation, so as to result in US federal income tax
consequences different from those discussed below. This summary
deals only with initial beneficial owners of debentures that
will hold such debentures and common stock into which debentures
may be converted as &#147;capital assets,&#148; within the
meaning of Section&nbsp;1221 of the Code, and does not address
tax consequences applicable to holders that may be subject to
special tax rules, such as financial institutions, tax-exempt
organizations, expatriates, pension funds, insurance companies,
dealers in securities or foreign currencies, persons that will
hold debentures as a position in a hedging transaction,
&#147;straddle,&#148; &#147;conversion transaction&#148; or
other risk reduction transaction for tax purposes, persons who
hold debentures through a partnership or other pass through
entity, or persons that have a &#147;functional currency&#148;
other than the US dollar (except as disclosed below under
&#147;Non-US Holders&#148;). This summary discusses the tax
consequences applicable to the holders who purchase the
debentures at their &#147;issue price&#148; as defined in
Section&nbsp;1273 of the Code (i.e., the first price at which a
substantial portion of the debentures is sold to the public). We
have not sought any ruling from the Internal Revenue Service
(the &#147;IRS&#148;) with respect to the statements made and
the conclusions reached in the following summary, and there can
be no assurance that the IRS will agree with such statements and
conclusions. Moreover, this discussion does not address the
effect of any applicable state, local or foreign tax laws, and
except where noted, the U.S.&nbsp;federal estate, gift or
alternative minimum tax consequences, if any, to the holder of
the debentures and common stock into which debentures may be
converted.
</FONT>

<P align="left">
<B><FONT size="2">INVESTORS CONSIDERING THE PURCHASE OF
DEBENTURES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE APPLICATION OF THE US FEDERAL INCOME AND ESTATE TAX LAWS TO
THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As used herein, the term &#147;US Holder&#148;
means a beneficial owner of a debenture or common stock that is
for U.S.&nbsp;federal income tax purposes, (i)&nbsp;a citizen or
resident of the United States, (ii)&nbsp;a corporation, limited
liability company or partnership created or organized in or
under the laws of the United States or any political subdivision
thereof, (iii)&nbsp;an estate, the income of which is subject to
US federal income taxation regardless of its source, or (iv)
(a)&nbsp;a trust, the administration of which is subject to the
primary supervision of a court within the United States and
which has one or more US persons, as defined in
Section&nbsp;7701(a)(3) of the Code, with authority to control
all substantial decisions, or (b)&nbsp;a trust that was in
existence on August&nbsp;20, 1996 and was treated as a domestic
trust on August&nbsp;19, 1996, that has elected to continue to
be treated as a U.S.&nbsp;trust. As used herein, the term
&#147;Non-US Holder&#148; means a beneficial owner of a
debenture or common stock that is not a US Holder. It should be
noted that certain &#147;single member entities&#148; are
disregarded for US federal income tax purposes. Thus, for US
federal income tax purposes, the income, gain, loss and
deductions of such an entity are attributed to the owner of such
single member entity. The discussion below for US Holders may
not apply to certain single member non-corporate entities that
are treated as owned by a Non-US Holder. Investors which are
single member noncorporate entities should consult with their
own tax advisors to determine the US federal, state, local and
other tax consequences that may be relevant to them.
</FONT>

<P align="left">
<B><FONT size="2">Treatment of Convertible Debentures as Debt or
Equity</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to treat the debentures as debt for
federal income tax purposes. This characterization is binding on
the holders of the debentures unless the holder discloses on
his, her or its federal income tax return that he, she or it is
taking a contrary position. The following assumes that the
debentures will be treated as debt for federal income tax
purposes.
</FONT>

<P align="center"><FONT size="2">81
</FONT>

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<P align="left">
<B><FONT size="2">US Holders</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of the principal US
federal income tax consequences resulting from the ownership and
disposition of the debentures and common stock by US Holders.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Payment of Interest</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Stated interest on a debenture generally will be
includable in the income of a US Holder as ordinary income at
the time such interest is received or accrued, in accordance
with such US Holder&#146;s method of accounting for
U.S.&nbsp;federal income tax purposes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Sale, Exchange or Redemption of the
    Debentures</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the sale, exchange or redemption of a
debenture, a US Holder generally will realize and recognize
capital gain or loss equal to the difference, if any, between
the amount realized on the sale, exchange or redemption and the
US Holder&#146;s adjusted tax basis in such debenture. For these
purposes, the amount realized on the sale, exchange or
redemption of the debentures is equal to the amount of cash plus
the fair market value of any other property received, but does
not include any amount attributable to accrued but unpaid
interest, which will be taxable as such unless previously taken
into account. A US Holder&#146;s adjusted tax basis in a
debenture generally will be the US dollar value of the purchase
price of such debenture on the date of purchase. Gain or loss so
recognized will generally be capital gain or loss and will be
long-term capital gain or loss if, at the time of the sale,
exchange or redemption, the debenture was held for more than one
year. The deductibility of net capital losses is subject to
limitations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Constructive Dividends on
    Debentures</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The conversion price of the debentures is subject
to adjustment under certain circumstances. Under
Section&nbsp;305 of the Code, adjustments to the conversion
ratio that increase a holder&#146;s proportionate share of our
assets or our earnings may in certain circumstances result in a
constructive dividend to such holder, resulting in ordinary
income to the holder to the extent of our current and
accumulated earnings and profits, as determined under
U.S.&nbsp;federal income tax principles. Similarly, a failure to
adjust the conversion price of the debentures to reflect a stock
dividend or similar event could in some circumstances give rise
to constructive dividend income to US Holders of common stock.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion of the Debentures</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A US Holder generally will not recognize any
income, gain or loss upon conversion of a debenture into common
stock, except with respect to cash received in lieu of a
fractional share of common stock. A US Holder&#146;s tax basis
in the common stock received on conversion of a debenture will
be the same as such US Holder&#146;s adjusted tax basis in the
debenture at the time of conversion reduced by any basis
allocable to a fractional share. The holding period for the
common stock received on conversion will generally include the
holding period of the debenture converted.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash received in lieu of a fractional share of
common stock upon conversion will be treated as a payment in
exchange for the fractional share of common stock. Accordingly,
the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss (measured by
the difference between the cash received for the fractional
share and the US Holder&#146;s adjusted tax basis in the
fractional share). The fair market value of the shares of common
stock received which is attributable to accrued interest will be
taxable as ordinary interest income.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends on Common Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Generally, a distribution by us with respect to
our common stock will be treated as a dividend, subject to tax
as ordinary income, to the extent of our current or accumulated
earnings and profits as of the year of such distribution, then
as a tax-free return of capital to the extent of a US
Holder&#146;s tax basis in the common stock that such US Holder
holds and thereafter as gain from the sale or exchange of such
stock.
</FONT>

<P align="center"><FONT size="2">82
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, a dividend distribution to a
corporate US Holder may qualify for the 70% dividends received
deduction if the US Holder owns less than 20% of the voting
power and value of our stock (other than any non-voting,
non-convertible, non-participating preferred stock). A corporate
US Holder that owns 20% or more of the voting power and value of
our stock (other than any non-voting, non-convertible,
non-participating preferred stock) may qualify for an 80%
dividends received deduction subject to important exceptions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Recently enacted tax legislation lowers the
maximum U.S.&nbsp;individual tax rate on capital gains and
&#147;qualified dividend income&#148; to 15% so long as certain
specified holding periods are satisfied. Capital gains on sales
of our common stock by U.S.&nbsp;individuals and &#147;capital
gain&#148; dividends received by U.S.&nbsp;individuals generally
will be eligible for the reduced 15% rate.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Sale of Common Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the sale or exchange of common stock, a US
Holder generally will recognize capital gain or loss equal to
the difference between (i)&nbsp;the amount of cash and the fair
market value of any property received upon the sale or exchange
and (ii)&nbsp;such US Holder&#146;s adjusted tax basis in the
common stock. Such capital gain or loss will be long-term if the
US Holder&#146;s holding period is more than one year and will
be short-term if the holding period is equal to or less than one
year.
</FONT>

<P align="left">
<B><FONT size="2">Non-US Holders</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following discussion is a summary of the
principal US federal income and estate tax consequences
resulting from the ownership of the debentures or common stock
by Non-US Holders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Special rules may apply to certain Non-US Holders
such as &#147;controlled foreign corporations,&#148;
&#147;passive foreign investment companies,&#148; &#147;foreign
personal holding companies,&#148; corporations that accumulate
earnings to avoid federal income tax, or in certain
circumstances, United States expatriates. Such Non-US Holders
should consult their own tax advisors to determine the US
federal, state, local and other tax consequences that may be
relevant to them.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Payment of Interest</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to the discussion below of backup
withholding, interest paid on the debentures to a Non-US Holder
generally will not be subject to U.S.&nbsp;federal income tax if:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;such interest is not effectively
connected with the conduct of a trade or business within the
United States by such Non-US Holder and applicable certification
requirements are met;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;the Non-US Holder does not actually or
constructively own 10% or more of the total voting power of all
classes of our stock entitled to vote within the meaning of
Section&nbsp;871(h)(3) of the Code;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(3)&nbsp;the Non-US Holder is not a controlled
foreign corporation that is related to us through stock
ownership (for this purpose, the holder of debentures would be
deemed to own constructively the common stock into which it
could be converted);
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(4)&nbsp;the Non-US Holder, under penalty of
perjury, certifies that he, she or it is not a US person (as
defined in Section&nbsp;7701(a)(3) of the Code) and provides
his, her or its name and address;&nbsp;and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(5)&nbsp;the Non-US Holder is not a bank
receiving interest on the debentures pursuant to a loan
agreement entered into in the ordinary course of its trade or
business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If certain requirements are satisfied, the
certification described in clause 4 above may be provided by a
securities clearing organization, a bank, or other financial
institution that holds customers&#146; securities in the
ordinary course of its trade or business. In addition, the
certification described in clause 4 above may also be provided
by a qualified intermediary on behalf of one or more beneficial
owners (or other intermediaries), provided that such
intermediary has entered into a withholding agreement with the
IRS and certain other conditions are met.
</FONT>

<P align="center"><FONT size="2">83
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With respect to foreign partnership and certain
foreign trusts, Treasury Regulations require such entities to
provide additional documentation which (i)&nbsp;certifies that
the individual partners, beneficiaries, or owners of the
partnership or trust are not US Holders, and (ii)&nbsp;provides
the names and addresses of the individual partners,
beneficiaries or owners.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A holder that is not exempt from tax under these
rules will be subject to U.S.&nbsp;federal income tax
withholding at a rate of 30% on payments of interest, unless the
interest is effectively connected with the conduct of a
U.S.&nbsp;trade or business of the holder or a lower treaty rate
applies and, in either case, the Non-US Holder provides us with
proper certification as to the holder&#146;s exemption from
withholding. If the interest is effectively connected to the
conduct of a U.S.&nbsp;trade or business of the Non-US Holder,
it will be subject to the US federal income tax on net income
that applies to U.S.&nbsp;persons generally. In addition, with
respect to corporate holders and under certain circumstances, a
Non-US Holder may be subject to a branch profits tax equal to
30% (or lower applicable treaty rate) of earnings and profits
for the taxable year, subject to adjustments, that are
effectively connected with the US trade or business. For this
purpose, interest will be included in the earnings and profits
of such foreign corporation. Non-US Holders should consult
applicable income tax treaties, which may provide different
rules.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Sale or Exchange</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to the discussion below on backup
withholding, a Non-US Holder generally will not be subject to
U.S.&nbsp;federal income tax or withholding on the gain realized
on the sale or exchange of a debenture, or the sale or exchange
of common stock, unless:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(1)&nbsp;the gain is effectively connected with
the conduct of a trade or business within the United States by
such Non-US Holder;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(2)&nbsp;in the case of an individual Non-US
Holder, such holder is present in the United States for
183&nbsp;days or more in the year of such sale or exchange and
certain other requirements are met;&nbsp;or
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(3)&nbsp;the Non-US Holder is subject to tax
pursuant to the provisions of US tax law applicable to certain
US expatriates.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Conversion of the Debentures</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A Non-US Holder generally will not be subject to
U.S.&nbsp;federal income tax on the conversion of a debenture
into shares of common stock. The fair market value of shares of
common stock received, which is attributable to accrued
interest, will be subject to the rules applicable to the payment
of interest described above. To the extent a Non-US Holder
receives cash in lieu of a fractional share on conversion, such
cash may give rise to gain that would be subject to the rules
described above with respect to the sale or exchange of a
debenture or common stock.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to the discussion below on backup
withholding, dividends, if any, paid on the common stock to a
Non-US Holder that are not treated as effectively connected to a
trade or business carried on by the Non-US Holder in the United
States generally will be subject to a 30% US federal withholding
tax, subject to reduction for Non-US Holders eligible for the
benefits of certain income tax treaties. Dividends for this
purpose may include stock distributions treated as deemed
dividends as discussed in &#147;US Holders&nbsp;&#151;
Constructive Dividends on Debentures&#148; above. A Non-US
Holder who wishes to claim the benefits of an applicable tax
treaty will be required to satisfy certain certification and
other requirements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except to the extent otherwise provided under an
applicable tax treaty, a Non-US Holder generally will be taxed
in the same manner as a US Holder on dividends paid (or deemed
paid) that are effectively connected with the conduct of a trade
or business in the United States by the Non-US Holder (and if
required by an applicable tax treaty, is attributable to a
permanent establishment maintained in the United States).
Certain certification and disclosure requirements must be
complied with in order for effectively connected income to be
exempt from withholding. In addition, if such Non-US Holder is a
foreign corporation, it may also be subject to a US branch
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">profits tax on such effectively connected income
at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">U.S.&nbsp;Federal Estate Tax</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A debenture held by an individual who at the time
of death is not a citizen or resident of the United States (as
specially defined for US federal estate tax purposes) will not
be subject to U.S.&nbsp;federal estate tax if the individual did
not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock and, at the
time of the individual&#146;s death, payments with respect to
such debenture would not have been effectively connected with
the conduct by such individual of a trade or business in the
United States. However, common stock held by an individual who
at the time of death is not a citizen or resident of the United
States (as specially defined for U.S.&nbsp;federal estate tax
purposes) will be included in such individual&#146;s estate for
U.S.&nbsp;federal estate tax purposes, and the rate of tax that
applies thereto may be reduced or eliminated if an applicable
estate tax treaty otherwise applies.
</FONT>

<P align="left">
<B><FONT size="2">Backup Withholding and Information
Reporting</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">US Holders</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A US Holder of debentures or common stock may be
subject to &#147;backup withholding&#148; with respect to
certain &#147;reportable payments,&#148; including interest
payments, dividend payments and, under certain circumstances,
principal payments on the debentures and certain other
consideration received upon the call, exchange, redemption or
conversion of a debenture. These backup withholding rules apply
if the US Holder, among other things, (i)&nbsp;fails to furnish
a social security number or other taxpayer identification number
(&#147;TIN&#148;) certified under penalties of perjury within a
reasonable time after the request therefor, (ii)&nbsp;furnishes
an incorrect TIN, (iii)&nbsp;fails to report properly interest
or dividends or (iv)&nbsp;under certain circumstances, fails to
provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that
such US Holder is not subject to backup withholding. A US Holder
who does not provide us with its correct TIN may also be subject
to penalties imposed by the IRS. Any amount withheld from a
payment to a holder under the backup withholding rules is
creditable against the holder&#146;s federal income tax
liability. Backup withholding will not apply, however, with
respect to payments made to certain US Holders, including
corporations and tax-exempt organizations, provided their
exemption from backup withholding is properly established. We
will report to US Holders of debentures and common stock and to
the IRS the amount of any &#147;reportable payments&#148; for
each calendar year and the amount of tax withheld, if any, with
respect to such payments.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Non-US Holders</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must report annually to the IRS and to each
Non-US Holder the amount of any dividends paid to, and tax
withheld with respect to, such holder, regardless of whether any
tax was actually withheld on such payments. Copies of these
information returns may also be made available under the
provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-US Holder resides or
is incorporated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under current Treasury Regulations, backup
withholding and information reporting will not apply to payments
of interest or principal of the debentures by us or our agent to
a Non-US Holder if the Non-US Holder certifies as to its Non-US
Holder status under penalties of perjury or otherwise
establishes an exemption (provided that neither we nor our agent
has actual knowledge that the holder is a U.S.&nbsp;person or
that the conditions of any other exemptions are not in fact
satisfied). The payment of the proceeds on the disposition of
debentures or share of common stock to or through the
U.S.&nbsp;office of a U.S.&nbsp;or foreign broker will be
subject to information reporting and backup withholding unless
the owner provides the certification described above or
otherwise establishes an exemption. The proceeds of the
disposition by a Non-US Holder of debentures or shares of common
stock effected outside the United States to or through a foreign
office of a broker generally will not be subject to backup
withholding or information reporting. However, if such broker
is, for U.S.&nbsp;federal income tax purposes, a
U.S.&nbsp;person, a controlled foreign corporation, a foreign
person that derives 50% or more of its gross income from all
sources for certain periods from activities that are effectively
connected with a US trade or business, a foreign partnership in
which one or more U.S.&nbsp;persons, in the aggregate, own more
than 50% of the
</FONT>

<P align="center"><FONT size="2">85
</FONT>

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<DIV align="left">
<FONT size="2">income or capital interests in the partnership or
a foreign partnership that is engaged in a trade or business in
the United States, information reporting requirements, but not
backup withholding, will apply unless such broker has
documentary evidence in its files of the holder&#146;s Non-US
status and has no actual knowledge (or reason to know) to the
contrary or unless the holder otherwise establishes an exemption.
</FONT>
</DIV>

<DIV align="left">
<A name='120'></A>
</DIV>

<!-- link1 "PLAN OF DISTRIBUTION" -->

<P align="center">
<B><FONT size="2">PLAN OF DISTRIBUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selling securityholders and their successors,
which term includes their transferees, pledgees or donees or
their successors may sell common stock, the debentures and the
underlying common stock (collectively, the
&#147;securities&#148;) directly to purchasers or through
underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or
commissions from the selling securityholders or the purchasers.
These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those
customary in the types of transactions involved.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sales of the securities may be effected by the
selling securityholder from time to time in one or more types of
transactions, which may include block transactions, on the
Nasdaq National Market, in the over-the-counter market, in
negotiated transactions otherwise than on the Nasdaq National
Market or in the over-the-counter market, through put or call
options transactions relating to the securities whether such
options are listed on an options exchange or otherwise, through
short sales of securities, or a combination of such methods of
sale, at market prices prevailing at the time of sale, at
varying prices determined at the time of sale, at fixed prices
or at negotiated prices. Such transactions may or may not
involve brokers or dealers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The securities may be sold by one or more, or a
combination, of the following, in addition to any other method
permitted under this prospectus:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a block trade in which the broker-dealer so
    engaged will attempt to sell the securities as agent but may
    position and resell a portion of the block as principal to
    facilitate the transaction;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">purchases by a broker-dealer as principal and
    resale by this broker-dealer for its account through this
    prospectus;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an exchange distribution;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">ordinary brokerage transactions and transactions
    in which the broker solicits purchasers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">privately negotiated transactions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an underwritten offering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">by pledge to secure debts and other
    obligations;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to cover hedging transactions made pursuant to
    this prospectus.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If required, this prospectus may be amended or
supplemented on a continual basis to describe a specific plan of
distribution. In making sales, broker-dealers engaged by the
selling securityholders may arrange for other broker-dealers to
participate in the resales.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The aggregate proceeds to the selling
securityholders from the sale of the common stock, the
debentures or the underlying common stock offered by them hereby
will be the purchase price of the debentures or common stock
less discounts and commissions, if any. Each of the selling
securityholders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part,
any proposed purchase of securities to be made directly or
through agents. We will not receive any of the proceeds from
this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the sale of securities, the
selling securityholders may enter into hedging transactions with
brokers, dealers or others, who in turn may engage in short
sales of the securities in the course of hedging the positions
they assume; sell short or deliver securities to close out
positions; or loan securities to brokers, dealers or others that
may in turn sell such securities. The selling securityholders
may enter into option or other transactions with broker-dealers
that require the delivery to the broker-dealer of the
securities. The broker-dealer may then resell or transfer these
securities through this prospectus. The selling securityholders
may also loan or
</FONT>

<P align="center"><FONT size="2">86
</FONT>

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<DIV align="left">
<FONT size="2">pledge the securities to a broker-dealer. The
broker-dealer may sell the securities which are loaned, or upon
a default the broker-dealer may sell the pledged securities by
use of this prospectus. Some or all of the securities offered in
this prospectus may also be sold to or through an underwriter or
underwriters. Any securities sold in that manner will be
acquired by the underwriters for their own accounts and may be
resold at different times in one or more transactions, including
negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. These securities
may be offered to the public through underwriting syndicates
represented by one or more managing underwriters or may be
offered to the public directly by one or more underwriters. Any
public offering price and any discounts or concessions allowed
or disallowed to be paid to dealers may be changed at different
times.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Underwriters, broker-dealers or agents may
receive compensation in the form of discounts, concessions, or
commissions from the selling securityholders and/or the
purchasers of securities for whom such underwriters,
broker-dealers or agents may act as agents or to whom they sell
as principal, or both (that compensation as to a particular
underwriter or broker-dealer might be in excess of customary
commissions and will be in amounts to be negotiated at the time
of sale).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selling securityholders and any underwriters,
broker-dealers or agents that act in connection with the sale of
securities may be deemed to be an &#147;underwriter&#148; within
the meaning of Section&nbsp;2(11) of the Act, and any
commissions received by them and any profit on the resale of the
securities sold by them while acting as principals might be
deemed to be underwriting discounts or commissions under the Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because each of the selling securityholders may
be deemed to be an &#147;underwriter&#148; within the meaning of
Section&nbsp;2(11) of the Securities Act, the selling
securityholders will be subject to the prospectus delivery
requirements of the Securities Act. Neither the delivery of any
prospectus, or any prospectus supplement, nor any other action
taken by the selling securityholders or any purchaser relating
to the purchase or sale of securities under this prospectus
shall be treated as an admission that any of them is an
underwriter within the meaning of the Act relating to the sale
of any securities. We have informed the selling stockholders
that the anti-manipulative provisions of Regulation&nbsp;M
promulgated under the Exchange Act may apply to their sales in
the market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selling securityholders also may resell all
or a portion of the securities in open market transactions in
reliance upon Rule&nbsp;144 under the Securities Act, provided
they meet the criteria and conform to the requirements of
Rule&nbsp;144.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The securities may be sold through registered or
licensed brokers or dealers if required under applicable state
securities laws. Additionally, in some states the securities may
not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the
registration or qualification requirement is available and is
complied with.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon notification to us by the selling
securityholders that any material arrangement has been entered
into with a broker-dealer for the sale of securities through a
block trade, special offering, exchange distribution or
secondary offering or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required,
pursuant to Rule&nbsp;424(b) under the Securities Act. That
supplement will disclose:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the name of the selling stockholder(s) and of the
    participating broker-dealer(s),
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the securities involved,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the price(s) at which such securities were sold,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the commissions paid or discounts or concessions
    allowed to such broker-dealer(s), where applicable,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">that such broker-dealer(s) did not conduct any
    investigation to verify the information set out or incorporated
    by reference in this prospectus,&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">other facts material to the transaction.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have agreed to indemnify the selling
securityholders, and the selling securityholders may agree to
indemnify any underwriter, broker-dealer or agent that
participates in transactions involving sales of the securities,
against certain liabilities, including liabilities arising under
the Act.
</FONT>

<P align="center"><FONT size="2">87
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate that the total expenses of the
offering payable by us, excluding underwriting discounts and
commissions, will be approximately $160,606.
</FONT>

<P align="left">
<A name='121'></A>

<!-- link1 "LEGAL MATTERS" -->

<P align="center">
<B><FONT size="2">LEGAL MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The validity of the issuance of the securities
registered under this Registration Statement has been passed
upon for the Company by Katten Muchin Zavis Rosenman of
Washington, DC. The fair market value of all securities of the
Registrant owned, received or to be received, or subject to
options, warrants or rights received or to be received by
members of Katten Muchin Zavis Rosenman, including certain
members of their families and trusts for their benefit, does not
exceed $50,000.
</FONT>

<P align="left">
<A name='122'></A>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements and
schedules of Alloy, Inc. and its subsidiaries as of
January&nbsp;31, 2004 and 2003 and for the years then ended, are
included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent registered public
accounting firm, and upon the authority of said firm as experts
in accounting and auditing. The audit report covering the
January&nbsp;31, 2003, financial statements refers to the change
in the method of accounting for goodwill and other intangible
assets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements for the
year ended January&nbsp;31, 2002 are included herein and in the
registration statement, and were audited by Arthur Andersen LLP,
independent public accountants, as indicated in its report with
respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in
giving said reports.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;31, 2002, we filed a current report
on Form&nbsp;8-K indicating that we engaged KPMG LLP to replace
Arthur Andersen as our independent auditors. During the fiscal
year ended January&nbsp;31, 2002 and the subsequent interim
period preceding the change of auditors, we had no disagreements
with Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosures or auditing scope or
procedures which, if not resolved to Arthur Andersen&#146;s
satisfaction, would have caused it to make reference to the
disagreement in connection with its report.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not been able to obtain, after reasonable
efforts, the written consent of Arthur Andersen to our naming it
in this prospectus as having certified our consolidated
financial statements for the year ended January&nbsp;31, 2002,
as required by Section&nbsp;7 of the Securities Act.
Accordingly, we have dispensed with the requirement to file its
consent in reliance upon Rule&nbsp;437a of the Securities Act.
Because Arthur Andersen has not consented to the inclusion of
its report in this prospectus, you may have no effective remedy
against Arthur Andersen under Section&nbsp;11 of the Securities
Act for any untrue statements of a material fact contained in
the financial statements audited by Arthur Andersen, or any
omissions to state a material fact required to be stated
therein. In addition, the ability of Arthur Andersen to satisfy
any claims (including claims arising from its provision of
auditing and other services to us) may be limited as a practical
matter due to events regarding Arthur Andersen.
</FONT>

<P align="left">
<A name='123'></A>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<P align="center">
<B><FONT size="2">WHERE YOU CAN FIND MORE INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We file annual, quarterly and special reports,
proxy statements and other information with the Commission. Our
Commission filings are available to the public over the Internet
at the Commission&#146;s Web site at http://www.sec.gov. You may
also read and copy any document we file at the Commission&#146;s
public reference room at 450&nbsp;Fifth Street, N.W.,
Washington,&nbsp;D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0330. Our common stock is listed and traded on the
Nasdaq National Market under the symbol &#147;ALOY.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus, which constitutes a part of a
registration statement on Form&nbsp;S-1 filed by us with the
Commission under the Act, omits certain of the information set
forth in the registration statement. Accordingly, you should
refer to the registration statement and its exhibits for further
information with respect to us and our common stock and
debentures. Copies of the registration statement and its
exhibits are on file at the offices of the Commission.
Furthermore, statements contained in this prospectus concerning
any document filed as an exhibit are not necessarily complete
and, in each instance, we refer you to the copy of the document
filed as an exhibit to the registration statement.
</FONT>

<P align="center"><FONT size="2">88
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC. AND SUBSIDIARIES</FONT></B>

<DIV align="center">
<B><FONT size="2">INDEX TO FINANCIAL STATEMENTS AND
SCHEDULE</FONT></B>
</DIV>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Audited Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Independent Registered Public Accounting
    Firm&#146;s Report of KPMG LLP (dated May&nbsp;14, 2004)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Report of Independent Public Accountants (Arthur
    Andersen, dated March&nbsp;13, 2002)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Balance Sheets as of
    January&nbsp;31, 2003 and 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Statements of Operations and
    Comprehensive Income (Loss) for the Years Ended January&nbsp;31,
    2002, 2003 and 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Statements of Changes in
    Stockholders&#146; Equity for the Years Ended January&nbsp;31,
    2002, 2003 and 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Consolidated Statements of Cash Flows for the
    Years Ended January&nbsp;31, 2002, 2003 and 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Notes to Consolidated Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Financial Statement Schedule
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">The following financial statement schedule is
    included herein:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Schedule&nbsp;II&nbsp;&#151; Valuation and
    Qualifying Accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unaudited Financial Statements for the fiscal
    quarter ended April&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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.
</FONT>

<P align="center"><FONT size="2">F-1
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">Report of Independent Registered Public
Accounting Firm</FONT></B>

<P align="left">
<FONT size="2">To the Board of Directors and
</FONT>

<DIV align="left">
<FONT size="2">Stockholders of Alloy, Inc.:
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying consolidated
balance sheets of Alloy, Inc. and subsidiaries as of
January&nbsp;31, 2004 and 2003, and the related consolidated
statements of operations and comprehensive (loss) income,
changes in stockholders&#146; (deficit)&nbsp;equity and cash
flows for the years then ended. In connection with our audits of
the consolidated financial statements, we also have audited the
related January&nbsp;31, 2004 and 2003 financial statement
schedules. These consolidated financial statements and financial
statement schedules are the responsibility of Alloy, Inc.&#146;s
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits. The consolidated financial
statements and related financial statement schedule of Alloy,
Inc. and subsidiaries as of January&nbsp;31, 2002 and for the
year then ended were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on
those financial statements and related financial statement
schedules, before the restatement described in Note&nbsp;19 to
the financial statements, in their report dated March&nbsp;13,
2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the 2003 and 2002 consolidated
financial statements referred to above present fairly, in all
material respects, the financial position of Alloy, Inc. and
subsidiaries as of January&nbsp;31, 2004 and 2003 and the
results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion,
the related 2003 and 2002 financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed in Note&nbsp;4 to the consolidated
financial statements, Alloy, Inc. changed its method of
accounting for goodwill and other intangible assets in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our report also indicates that the Company
changed the composition of its reportable segments in 2002 and
the amounts in the 2001 financial statements related to
reportable segments have been restated to conform to the 2002
composition of reportable segments. As described in
Note&nbsp;19, the Company changed the composition of its
reportable segments in 2002, and the amounts in the 2001
financial statements relating to reportable segments have been
restated to conform to the 2002 composition of reportable
segments. As discussed above, the 2001 financial statements of
Alloy, Inc. were audited by other auditors who have ceased
operations.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">/s/KPMG LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">New York, New York
</FONT>

<DIV align="left">
<FONT size="2">May&nbsp;14, 2004
</FONT>
</DIV>

<P align="center"><FONT size="2">F-2
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS</FONT></B>

<P align="left">
<FONT size="2">To the Board of Directors and
</FONT>

<DIV align="left">
<FONT size="2">Shareholders of Alloy, Inc.:
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying consolidated
balance sheets of Alloy, Inc. (a Delaware corporation) and
subsidiaries as of January&nbsp;31, 2001 and 2002, and the
related consolidated statements of operations and comprehensive
loss, statements of changes in shareholders&#146; equity and
accumulated other comprehensive (loss) income and cash flows for
each of the three years in the period ended January&nbsp;31,
2002. These financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
did not audit the financial statements of 360 Youth, Inc. as of
January&nbsp;31, 2002 and for the period from November&nbsp;27,
2001 through January&nbsp;31, 2002, which statements reflect
total assets and total revenues of 2&nbsp;percent and
3&nbsp;percent in the fiscal year ended January&nbsp;31, 2002 of
the related consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for this
entity, is based solely on the report of the other auditors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and
the report of other auditors provide a reasonable basis for our
opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, based on our audits and the
report of other auditors, the financial statements referred to
above present fairly, in all material respects, the financial
position of Alloy, Inc. and subsidiaries as of January&nbsp;31,
2001 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended
January&nbsp;31, 2002 in conformity with accounting principles
generally accepted in the United States.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole.
The schedule of valuation and qualifying accounts is presented
for purposes of complying with the Securities and Exchange
Commission&#146;s rules and is not part of the basic financial
statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">ARTHUR ANDERSEN LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">New York, New York
</FONT>

<DIV align="left">
<FONT size="2">March&nbsp;13, 2002
</FONT>
</DIV>

<P align="left">
<FONT size="2">THIS IS A COPY OF A REPORT ISSUED BY ARTHUR
ANDERSEN LLP, OUR FORMER INDEPENDENT AUDITORS, AS OF THE DATES
INDICATED ABOVE, AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP SINCE THOSE DATES.
</FONT>

<P align="center"><FONT size="2">F-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED BALANCE SHEETS</FONT></B>

<DIV align="center">
<B><FONT size="2">Audited Financial Statements.</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">except share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CURRENT ASSETS:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketable securities available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net of allowance for
    doubtful accounts of $3,410 and $3,336, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,022</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,466</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,021</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid catalog costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketable securities available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">270,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible and other assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">434,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CURRENT LIABILITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,106</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mortgage note payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses and other current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,698</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Convertible Debentures Due 2023
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;B Redeemable Convertible Preferred
    Stock, $10,000&nbsp;per share liquidation preference;
    $.01&nbsp;par value; 3,000&nbsp;shares designated; mandatorily
    redeemable on June&nbsp;19, 2005; 1,613 and 1,340&nbsp;shares
    issued and outstanding, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,550</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,434</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">STOCKHOLDERS&#146; EQUITY:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock; $.01&nbsp;par value;
    10,000,000&nbsp;shares authorized of which 1,850,000&nbsp;shares
    designated as Series&nbsp;A Redeemable Convertible Preferred
    Stock and 3,000&nbsp;shares designated as Series&nbsp;B
    Redeemable Convertible Preferred Stock authorized, 1,613 and
    1,340&nbsp;shares issued and outstanding as Series&nbsp;B
    Redeemable Convertible Preferred Stock (above), respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock; $.01&nbsp;par value;
    200,000,000&nbsp;shares authorized; 40,082,024 and
    42,701,767&nbsp;shares issued, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">412,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(51,955</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(127,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,411</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less common stock held in treasury, at cost;
    8,275 and 608,275&nbsp;shares, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">345,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">281,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">434,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF
OPERATIONS</FONT></B>

<DIV align="center">
<B><FONT size="2">AND COMPREHENSIVE (LOSS)&nbsp;INCOME</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For the Years Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Amounts in thousands, except</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">share and per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NET REVENUES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net direct marketing revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156,821</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">185,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total net revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,622</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">299,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">COST OF REVENUES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of goods sold
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,912</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of sponsorship and other revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,008</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total cost of revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">189,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">154,182</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">182,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OPERATING EXPENSES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling and marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">108,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,970</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of goodwill and other intangible
    assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill and other indefinite-lived
    intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of long-lived assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,315</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">250,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Loss) income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,897</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,686</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OTHER INCOME (EXPENSE):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">687</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,690</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain (loss) on sales of marketable securities and
    write-off of investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Loss) income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,823</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(69,936</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized (loss) gain on available-for-sale
    marketable securities, net of realized gains and losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(892</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(194</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Comprehensive (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,492</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,409</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividends and accretion of
    discount
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income attributable to common
    stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(77,159</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted net (loss) earnings per share
    of common stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net (loss) earnings attributable to common
    stockholders per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted net (loss) earnings attributable to
    common stockholders per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,967,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,436,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,175,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">WEIGHTED AVERAGE DILUTED COMMON SHARES
    OUTSTANDING:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,967,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,071,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,175,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS&#146; EQUITY</FONT></B>

<P align="center">
<B><FONT size="2">For the Year Ended January&nbsp;31,
2002</FONT></B>

<DIV align="center">
<B><FONT size="2">(Amounts in thousands, except share
data)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid-In</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Income (Loss)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,245,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">140,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(52,905</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(728</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of common stock and warrants for
    acquisitions of businesses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,534,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cancellation of stock options issued to employees
    and consultants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(488</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">488</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of common stock pursuant to the exercise
    of options and warrants and the employee stock purchase plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,273,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impact of beneficial conversion feature in
    issuance of Series&nbsp;A and Series&nbsp;B Convertible
    Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,745</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of warrants to holders of Series&nbsp;A
    and B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of common stock for conversion of
    Series&nbsp;A and Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">921,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of common stock and warrants in
    connection with private placements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,942,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,956</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,995</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accretion of discount and dividends on
    Series&nbsp;A and Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,013</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,013</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized loss on available-for-sale marketable
    securities, net of realized gains and losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(892</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(892</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,916,877</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">349</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">324,719</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,250</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(53</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">249,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS&#146; EQUITY</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Year Ended January&nbsp;31,
2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Amounts in thousands, except share
data)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="22%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Treasury Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid-In</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Income (Loss)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, January&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">34,916,877</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">349</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">324,719</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(75,250</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(53</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">249,734</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock and warrants for
    acquisitions of businesses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">803,628</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,421</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,429</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Shares returned from escrow
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock pursuant to the exercise
    of options and warrants and the employee stock purchase plan,
    net of tax benefit of $2,481
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">225,050</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,403</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,405</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock for conversion of
    Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">136,469</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,594</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,596</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock and warrants in
    connection with private placements and public offering, net of
    expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,000,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">56,926</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">56,966</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Accretion of discount and dividends on
    Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23,295</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23,295</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized gain on available-for-sale marketable
    securities, net of realized gains and losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">217</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">217</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,082,024</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">401</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">396,963</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(51,955</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">164</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">345,442</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-7
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS&#146; EQUITY</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Year Ended January&nbsp;31,
2004</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Amounts in thousands, except share
data)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="22%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Treasury Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid-In</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Income</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Loss)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,082,024</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">401</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">396,963</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(51,955</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">164</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">345,442</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock for acquisitions of
    businesses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,165,048</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">21</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,150</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,171</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Repurchase of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(600,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,984</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,984</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Revision of accrued issuance costs in connection
    with public and private stock offerings
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">102</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">102</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock pursuant to the exercise
    of options and common stock purchases under the employee stock
    purchase plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">193,190</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">854</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">856</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock for conversion of
    Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">261,505</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,057</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,060</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,385</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,385</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">989</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">989</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of stock options to employees
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(27</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Accretion of discount and dividends on
    Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,944</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,944</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized loss on available-for-sale marketable
    securities, net of realized gains and losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(194</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(194</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42,701,767</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">427</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">412,594</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(127,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,411</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(608,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">281,295</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For the Years Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH FLOWS FROM OPERATING ACTIVITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net (loss) income to net
    cash provided by operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,053</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax (benefit) expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,606</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill and other indefinite-lived
    intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of long-lived assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,315</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of debt issuance costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Realized (gain)&nbsp;loss on sales of marketable
    securities and write-off of investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(658</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Compensation charge for restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Compensation charge for issuance of stock options
    and common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax benefit of exercised options on
    current year tax provision
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,224</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in operating assets and
    liabilities&nbsp;&#151; net of effect of business acquisitions:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,443</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,376</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(69</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,918</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid catalog costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(456</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable, accrued expenses, and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(752</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,070</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH FLOWS FROM INVESTING ACTIVITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of marketable securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,299</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(77,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(52,198</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the sales and maturities of
    marketable securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,087</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,317</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,767</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sale and disposal of capital assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid in connection with acquisitions of
    businesses, net of cash acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,760</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89,580</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(66,728</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of minority investment and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(200</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of mailing lists, domain names and
    marketing rights
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(883</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,850</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,149</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(107,007</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(72,037</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CASH
FLOWS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For the Years Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH FLOWS FROM FINANCING ACTIVITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net proceeds from sale of common stock, net of
    expenses paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net proceeds from sale of Series&nbsp;A and
    Series&nbsp;B Redeemable Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross proceeds from issuance of Debentures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt issuance costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,506</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercise of options and warrants and common stock
    purchases under the employee stock purchase plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repurchase of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,984</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of credit facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net payments under line of credit agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,937</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of bank-loan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments of capitalized lease obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(163</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(383</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(570</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,428</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net increase (decrease) in cash and cash
    equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,431</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH AND CASH EQUIVALENTS, beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH AND CASH EQUIVALENTS, end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
    FINANCING ACTIVITY:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid during the year for:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NON-CASH INVESTING AND FINANCING ACTIVITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of common stock and warrants in
    connection with acquisitions (Note&nbsp;3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conversion of Series&nbsp;A and Series&nbsp;B
    Redeemable Convertible Preferred Stock into common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-10
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Business</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy, Inc. (&#147;Alloy&#148; or the
&#147;Company&#148;) is a media, marketing services, retail and
direct marketing company targeting Generation&nbsp;Y, the more
than 60&nbsp;million boys and girls in the United States between
the ages of 10 and 24. Alloy&#146;s business integrates direct
mail catalogs, retail stores, print media, display media boards,
websites, on-campus marketing programs and promotional events,
and features a portfolio of brands that are well known among
Generation&nbsp;Y consumers and advertisers. Alloy reaches a
significant portion of Generation&nbsp;Y consumers through its
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, Alloy is
able to offer advertisers targeted access to the youth market.
Additionally, Alloy&#146;s assets have enabled it to build a
comprehensive database that includes information about
approximately 26&nbsp;million Generation&nbsp;Y consumers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy generates revenue from three principal
sources&nbsp;&#151; direct marketing, retail stores, and
sponsorship and other activities. From its catalogs and
websites, Alloy sells branded products in key Generation&nbsp;Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Alloy&#146;s
retail stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. Alloy
generates sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach
Generation&nbsp;Y. Advertisers can reach Generation&nbsp;Y
through integrated marketing programs that include its catalogs,
books, websites, and display media boards, as well as through
promotional events, product sampling, college and high school
newspaper advertising, customer acquisition programs and other
marketing services that Alloy provides.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Summary of Significant Accounting
    Policies</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Fiscal Year</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy&#146;s fiscal year ends on January&nbsp;31.
All references herein to a particular fiscal year refer to the
year ended January&nbsp;31 following the particular year (e.g.,
&#147;fiscal 2003&#148; refers to the fiscal year ended
January&nbsp;31, 2004).
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Principles of Consolidation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements include the
accounts of Alloy and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue Recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Direct marketing revenues are recognized at the
time products are shipped to customers, net of any promotional
price discounts and an allowance for sales returns. The
allowance for sales returns is estimated based upon Alloy&#146;s
direct marketing return policy, historical experience and
evaluation of current sales and returns trends. Direct marketing
revenues also include shipping and handling billed to customers.
Shipping and handling costs are reflected in Selling and
Marketing expenses in the accompanying consolidated statements
of operations, and approximated $11.8&nbsp;million,
$14.7&nbsp;million and $12.9&nbsp;million for fiscal 2001,
fiscal 2002, and fiscal 2003, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Retail stores revenues are recognized at the
point of sale, net of any promotional price discounts and an
allowance for sales returns. The allowance for sales returns is
estimated based upon Alloy&#146;s retail return policy,
historical experience and evaluation of current sales and
returns trends.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sponsorship revenues consist primarily of
advertising provided for third parties in Alloy&#146;s media
properties or via marketing events or programs that it executes
on the advertiser&#146;s behalf. Revenue under these
arrangements is 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
&#147;impression&#148; or based upon the provision of
</FONT>

<P align="center"><FONT size="2">F-11
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">contracted services in connection with the
marketing event or program. In-catalog print advertising
revenues are recognized as earned pro rata on a monthly basis
over the estimated economic life of the catalog. Billings in
advance of advertising delivery are deferred until earned.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other activities revenues consist of book
development/publishing revenue and other service contracts. The
revenues earned in connection with publishing activities are
recognized upon publication of such property. Any amounts
received prior to publication are treated as advances, and
classified as a current liability. Contract revenues are
recognized upon the delivery of the contracted services and when
no significant company performance obligation remains. Billings
recorded in advance of provision of services are deferred until
the services are provided. Service revenues are recognized as
the contracted services are rendered. In the case of
Alloy&#146;s advertising placement services, revenue is reported
in accordance with Emerging Issues Task Force Issue
No.&nbsp;99-19, &#147;Reporting Revenue Gross as a Principal
versus Net as an Agent.&#148; Alloy 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.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Use of Estimates</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Reclassifications</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain balances in the prior year have been
reclassified to conform to the presentation adopted in the
current year.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cash and Cash Equivalents</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash equivalents consist of highly liquid
investments with original maturities of three months or less.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Restricted Cash</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Restricted cash represents the cash that backs
Alloy&#146;s line of credit. Restricted cash classified in
Current Assets on the consolidated balance sheets totaled
approximately $3.3&nbsp;million as of January&nbsp;31, 2004.
Restricted cash primarily represents collateral for standby
letters of credit issued in connection with the Company&#146;s
merchandise sourcing activities. The restriction will be removed
after the letters of credit expire or are cancelled.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Marketable Securities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy accounts for investments in marketable
securities in accordance with the provisions of Statement of
Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;115,
&#147;Accounting for Certain Investments in Debt and Equity
Securities.&#148; Alloy has evaluated its investment policies
and determined that all of its investment securities are to be
classified as available-for-sale. Available-for-sale securities
are reported at fair value, with the unrealized gains and losses
reported in stockholders&#146; equity, under the caption
&#147;accumulated other comprehensive (loss) income.&#148;
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.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Allowance for Doubtful
    Accounts</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy determines its allowance for doubtful
accounts based on the evaluation of the aging of its accounts
receivable and a customer-by-customer analysis of its high-risk
customers. Its reserves contemplate its historical
</FONT>

<P align="center"><FONT size="2">F-12
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">loss rate on receivables, specific customer
situations, and the economic environments in which the Company
operates.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Unbilled Accounts Receivable</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;31, 2003 and January&nbsp;31,
2004, accounts receivable included approximately
$4.0&nbsp;million and $4.3&nbsp;million, respectively, of
unbilled receivables, which are a normal part of the
Company&#146;s sponsorship business, as some receivables are
normally invoiced in the month following the completion of the
earnings process.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Concentration of Credit Risk</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With respect to its sponsorship and other
activities segment, Alloy provides media, marketing, advertising
placement and event promotion services to over 1,500 clients who
operate in a variety of industry sectors. Alloy extends credit
to qualified clients in the ordinary course of its business.
With respect to its direct marketing and retail stores segments,
Alloy collects payment for all merchandise, and performs credit
card authorizations and check verifications for all customers
prior to shipment or delivery. Due to the diversified nature of
its client base, it does not believe that it is exposed to a
concentration of credit risk, as its largest client accounted
for less than 2% of its fiscal 2003 consolidated revenue.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Fair Value of Financial
    Instruments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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, including derivative financial instruments, are
carried at their fair values in the accompanying consolidated
balance sheets. Alloy calculates the fair value of financial
instruments and includes this additional information in the
notes to financial statements when the fair value is different
than the book value of those financial instruments. When the
fair value approximates book value, no additional disclosure is
made. Alloy uses quoted market prices whenever available to
calculate these fair values. When quoted market prices are not
available, Alloy uses standard pricing models for various types
of financial instruments which take into account the present
value of estimated future cash flows.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Inventories</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Inventories, which consist of finished goods, are
stated at the lower of cost (first-in, first-out method) or
market value.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Catalog Costs</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Catalog costs consist of catalog production and
mailing costs. Catalog costs are capitalized and charged to
expense over the expected future revenue stream, which is
principally three to five months from the date the catalogs are
mailed. Deferred catalog costs as of January&nbsp;31, 2003 and
2004 were approximately $2.1&nbsp;million and $2.0&nbsp;million
respectively. Catalog costs expensed for the years ended
January&nbsp;31, 2002, 2003 and 2004 were approximately
$20.6&nbsp;million, $25.9&nbsp;million, and $32.0&nbsp;million,
respectively, and are included within Selling and Marketing
expenses in the accompanying consolidated statements of
operations.
</FONT>

<P align="center"><FONT size="2">F-13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Property and Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property and equipment are stated at cost and
depreciated or amortized using the straight-line method over the
following estimated useful lives:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer equipment under capitalized leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">Life of the lease</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">Life of the lease</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer software and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">3 to 5&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Machinery and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">3 to 10&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Office furniture and fixtures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">5 to 10&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Building
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">40&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill and Other
    Intangibles</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with SFAS&nbsp;No.&nbsp;142,
&#147;Goodwill and Other Intangible Assets,&#148; goodwill
acquired resulting from a business combination for which the
acquisition date was after June&nbsp;30, 2001 is no longer
amortized, but is periodically tested for impairment.
Additionally, in accordance with SFAS&nbsp;No.&nbsp;141,
&#147;Business Combinations,&#148; Alloy allocates the cost of
an acquired entity to the assets acquired and liabilities
assumed based on their estimated fair values including other
identifiable intangible assets, as applicable, such as trade
names, customer relationships and client lists. Information
about acquisitions can be found in Note&nbsp;3.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill and Other Indefinite-Lived
    Intangible Assets Impairment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill impairment is determined using a
two-step process. The first step of the goodwill impairment test
is designed to identify potential impairment by comparing the
fair value of a reporting unit (generally, the Company&#146;s
reportable segment) with its net book value (or carrying
amount), including goodwill. If the fair value of a reporting
unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired and the second step of the impairment
test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test
compares the implied fair value of the reporting unit&#146;s
goodwill with the carrying amount of that goodwill. If the
carrying amount of the reporting unit&#146;s goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the
fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in
a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit. The
impairment test for other indefinite-lived intangible assets
consists of a comparison of the fair value of the intangible
asset with its carrying value. If the carrying value of the
intangible asset exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. Similarly, estimates and assumptions
are used in determining the fair value of other intangible
assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and
also the magnitude of any such charge. To assist in the process
of determining goodwill impairment, the Company obtains
appraisals from an independent valuation firm. In addition to
the use of an independent valuation firm, the Company performs
internal valuation analyses and considers other market
information that is publicly available. Estimates of fair value
are primarily determined using discounted cash flows and market
comparisons. These approaches use significant estimates and
</FONT>

<P align="center"><FONT size="2">F-14
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">assumptions including projected future cash flows
(including timing), discount rates reflecting the risk inherent
in future cash flows, perpetual growth rates, determination of
appropriate market comparables and the determination of whether
a premium or discount should be applied to comparables.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In fiscal 2003, Alloy recorded a
$56.7&nbsp;million charge to reduce the carrying value of
goodwill and an approximate $1.9&nbsp;million and
$2.0&nbsp;million charge to reduce the carrying value of other
indefinite-lived intangible assets in the direct marketing
segment and sponsorship and other segment, respectively. The
combined $60.6&nbsp;million charge is reflected as a component
of operating income in the accompanying consolidated statement
of operations. Any subsequent adjustment to purchase price
related to the dELiA*s acquisition due to the finalization of
the preacquisition contingencies related to taxes (other than
income taxes) and other matters for which the Company is
awaiting additional information for its completion of purchase
price allocation, may result in an adjustment to the impairment
charge. Additional information about SFAS&nbsp;No.&nbsp;142 is
contained in Note&nbsp;4.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Impairment of Long-Lived
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with SFAS&nbsp;No.&nbsp;144,
&#147;Accounting for the Impairment or Disposal of Long-Lived
Assets&#148; (&#147;SFAS&nbsp;No.&nbsp;144&#148;), which the
Company adopted in 2002, long-lived assets, such as property,
plant, and equipment, 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. Assets to be
disposed of would be separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets
and liabilities of a disposed group classified as held for sale
would be presented separately in the appropriate asset and
liability sections of the balance sheet.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to SFAS&nbsp;No.&nbsp;144, the Company
performed an analysis of the recoverability of certain
long-lived assets during the fourth quarter of fiscal 2003 and
recorded an asset impairment charge of $1.3&nbsp;million in the
direct marketing segment. Alloy determined that the carrying
amounts of the non-competition agreement of $144,000 related to
Old Glory, the website of $31,000 related to Old Glory and the
non-competition agreement of $23,000 related to Girlfriends LA
were impaired as the Company plans to discontinue marketing its
Old Glory and Girlfriends LA brands. In addition, the future
cash flows related to Dan&#146;s Comp could not fully support
the carrying amount of Dan&#146;s Comp&#146;s long-lived assets.
As a result, an impairment charge related to the non-competition
agreement of $209,000, property and equipment of $159,000, and
mailing list of $749,000 was recorded.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock Option and Employee Stock Purchase
    Plans</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company accounts for its stock option plans
in accordance with the provisions of Accounting Principles Board
Opinion No.&nbsp;25 (&#147;APB No.&nbsp;25&#148;),
&#147;Accounting for Stock Issued to Employees,&#148; and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the then current market
price of the underlying stock exceeded the exercise price. The
Company discloses the pro forma effect on net income (loss) and
earnings per share as required by SFAS&nbsp;No.&nbsp;123,
&#147;Accounting for Stock-Based Compensation,&#148; recognizing
as expense over the vesting period the fair value of all
stock-based awards on the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Shares issued under the employee stock purchase
plan are considered noncompensatory for the determination of
compensation expense under APB No.&nbsp;25, but the fair value
of the benefit related to acquiring such shares at a discount is
included as compensation expense in the pro forma disclosures
required by SFAS&nbsp;No.&nbsp;123.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table reflects the effect on net
(loss) income and (loss) earnings per share attributable to
common stockholders if the Company had applied the fair value
recognition provisions of SFAS&nbsp;No.&nbsp;123 to
</FONT>

<P align="center"><FONT size="2">F-15
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">stock-based employee compensation. These pro
forma effects may not be representative of future amounts since
the estimated fair value of stock options on the date of grant
is amortized to expense over the vesting period and additional
options may be granted in future years.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Amounts in thousands,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add: Total stock-based employee compensation
    costs included in reported net (loss) income, net of taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Total stock-based employee compensation
    costs determined under fair value based method for all awards,
    net of taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,356</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,290</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,965</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,747</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(87,179</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic (loss) earnings attributable to common
    stockholders per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.42</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.16</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted (loss) earnings attributable to common
    stockholders per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.42</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.16</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SFAS&nbsp;No.&nbsp;148, &#147;Accounting for
Stock-Based Compensation&nbsp;&#151; Transition and Disclosure
an amendment of FASB Statement No.&nbsp;123,&#148; which was
issued in December 2002, provides alternative methods of
transition for an entity that changes to the fair value based
method of accounting for stock-based compensation and requires
more prominent disclosure of the pro forma impact on earnings
per share. The disclosure portion of the statement was adopted
in 2002. On April&nbsp;22, 2003, the FASB determined that fair
value of stock-based compensation should be recognized as a cost
in the financial statements. On March&nbsp;31, 2004, the FASB
issued an exposure draft that provides for a comment period,
which ends June&nbsp;30, 2004. The proposed statement would be
effective for awards that are granted, modified, or settled in
fiscal years beginning after December&nbsp;15, 2004. The Company
has not yet determined the impact of this statement on its
consolidated financial position, results of operations or cash
flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">See Note&nbsp;14 for additional information
concerning the Company&#146;s stock option and employee stock
purchase plans.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Income Taxes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Net (Loss) Earnings Per Share</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Basic and diluted net (loss) earnings per share
are computed and presented in accordance with
SFAS&nbsp;No.&nbsp;128, &#147;Earnings per Share.&#148; Basic
net (loss) earnings per share was determined by dividing net
loss by the weighted-average number of common shares outstanding
during each period. Contingently issuable shares are
</FONT>

<P align="center"><FONT size="2">F-16
</FONT>

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<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">excluded from the calculation of basic net loss
per share until the contingency related to the shares is
resolved. Diluted net income per share of the Company includes
the impact of certain potentially dilutive securities. However,
diluted net loss per share excludes the effects of potentially
dilutive securities because inclusion of these instruments would
be anti-dilutive. A reconciliation of the net income available
for common stockholders and the number of shares used in
computing basic and diluted net (loss) income per share is
provided in Note&nbsp;16.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Derivative Instruments and Hedging
    Activities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2000, Alloy purchased put options and
sold call options (referred to as collars) on a total of
600,000&nbsp;shares of Liberty Digital, Inc. (&#147;LDIG&#148;)
common stock, representing a portion of LDIG common stock
already owned by Alloy as available-for-sale marketable
securities. The options allowed Alloy to sell LDIG common stock
at various prices and were designated as a hedge against
potential declines in the fair value of LDIG common stock. The
options were to expire on various dates beginning January 2003
through July 2003. The net fair values of the options were
$9.3&nbsp;million on January&nbsp;31, 2001 and they were
classified as available-for-sale marketable securities with a
corresponding unrealized gain included in accumulated other
comprehensive income in the accompanying consolidated balance
sheet.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy adopted the provisions of
SFAS&nbsp;No.&nbsp;133, &#147;Accounting for Derivative
Instruments and Hedging Activities&#148; and its related
amendments in SFAS&nbsp;No.&nbsp;138, &#147;Accounting for
Certain Derivative Instruments and Certain Hedging
Activities,&#148; and SFAS&nbsp;No.&nbsp;149 &#147;Amendment of
Statement&nbsp;133 on Derivative Instruments and Hedging
Activities.&#148; These pronouncements require companies to
reflect the fair value of all derivative instruments, including
those embedded in other contracts, as assets or liabilities in
an entity&#146;s balance sheet. Changes in fair value of
derivative instruments are generally reflected in earnings, with
the exception of certain hedging transactions, for which the
change in fair value may be accounted for as a component of
other comprehensive income, provided that certain criteria are
met as specified in these pronouncements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the adoption of
SFAS&nbsp;No.&nbsp;133 on February&nbsp;1, 2001, Alloy
transferred 628,305&nbsp;shares of Liberty Digital, Inc. common
stock together with the equity collars on 600,000&nbsp;shares of
Liberty Digital common stock that were previously designated as
fair value hedges and classified as available-for-sale, to the
classification of trading securities, pursuant to
SFAS&nbsp;No.&nbsp;133. The impact of the transfer was to
recognize earnings of $854,000 as of February&nbsp;1, 2001,
representing the net unrealized holding gain for the securities
as of February&nbsp;1, 2001. In March 2001, Alloy sold its
Liberty Digital shares and unwound the collars, which generated
a net loss on the sales of the securities of $196,000 resulting
in a total net gain on the sales of securities for fiscal 2001
of $658,000. As of January&nbsp;31, 2004, Alloy does not have
any freestanding derivative instruments, or instruments with
embedded derivative features.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Recently Issued Accounting
    Pronouncements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following pronouncements impact Alloy&#146;s
financial statements as discussed below:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">SFAS&nbsp;No.&nbsp;146</FONT></I><FONT size="2">&nbsp;&#151;
&#147;Accounting for Costs Associated With Exit or Disposal
Activities&#148; requires costs associated with exit or disposal
activities to be recognized and measured initially at fair value
only when the liability is incurred. SFAS&nbsp;No.&nbsp;146 is
effective for exit or disposal activities that are initiated
after December&nbsp;31, 2002. Alloy adopted
SFAS&nbsp;No.&nbsp;146 effective January&nbsp;1, 2003. The
impact of SFAS&nbsp;No.&nbsp;146 on Alloy&#146;s consolidated
financial position is further described in Note&nbsp;18 to the
financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">SFAS&nbsp;No.&nbsp;148</FONT></I><FONT size="2">&nbsp;&#151;
&#147;Accounting for Stock-Based Compensation&nbsp;&#151;
Transition and Disclosure&nbsp;&#151; An Amendment of FASB
No.&nbsp;123&#148; was issued as an amendment to FASB
No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; and provides alternative methods of
transition for an entity that voluntarily changes to the fair
value based method of accounting for stock-based employee
compensation (in accordance with SFAS&nbsp;No.&nbsp;123). Alloy
has applied the accounting provisions of APB Opinion
No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees,&#148; and Alloy has made the annual pro forma
disclosures of the effect of adopting the fair value method
</FONT>

<P align="center"><FONT size="2">F-17
</FONT>

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<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">of accounting for employee stock options and
similar instruments as required by SFAS&nbsp;No.&nbsp;123 and
permitted under SFAS&nbsp;No.&nbsp;148. SFAS&nbsp;No.&nbsp;148
also requires pro forma disclosure to be provided on a quarterly
basis. Alloy began the quarterly disclosures for the first
quarter of fiscal 2003 and will continue to closely monitor
developments in the area of accounting for stock-based
compensation. On April&nbsp;22, 2003, the FASB determined that
fair value of stock-based compensation should be recognized as a
cost in the financial statements. On March&nbsp;31, 2004, the
FASB issued an exposure draft that provides for a comment
period, which ends June&nbsp;30, 2004. The proposed statement
would be effective for awards that are granted, modified, or
settled in fiscal years beginning after December&nbsp;15, 2004.
The Company has not yet determined the impact of this statement
on its consolidated financial position, results of operations or
cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">SFAS&nbsp;No.&nbsp;149</FONT></I><FONT size="2">&nbsp;&#151;
&#147;Amendment of Statement&nbsp;133 on Derivative Instruments
and Hedging Activities.&#148; SFAS&nbsp;No.&nbsp;149 amends
SFAS&nbsp;No.&nbsp;133, &#147;Accounting for Derivative
Instruments and Hedging Activities&#148; and clarifies
accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities under SFAS&nbsp;No.&nbsp;133. This Statement
is effective for contracts entered into or modified after
June&nbsp;30, 2003, except in certain circumstances, and for
hedging relationships designated after June&nbsp;30, 2003. This
statement did not have a material impact on the Company&#146;s
financial position or operating results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">SFAS&nbsp;No.&nbsp;150</FONT></I><FONT size="2">&nbsp;&#151;
&#147;Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.&#148;
SFAS&nbsp;No.&nbsp;150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances),
whereby many of those instruments were previously classified as
equity. SFAS&nbsp;No.&nbsp;150 is effective for all freestanding
financial instruments entered into or modified after
May&nbsp;31, 2003 otherwise it became effective at the beginning
of the first interim period beginning after June&nbsp;15, 2003.
SFAS&nbsp;No.&nbsp;150 is to be implemented by reporting the
cumulative effect of a change in accounting principle for
financial instruments created before the issuance of
SFAS&nbsp;No.&nbsp;150 and still existing at the beginning of
the interim period of adoption. Alloy adopted the provisions of
SFAS&nbsp;No.&nbsp;150 effective August&nbsp;1, 2003. The
adoption of SFAS&nbsp;No.&nbsp;150 did not have an impact on the
financial statements as Alloy&#146;s Series&nbsp;B Convertible
Preferred Stock, which is the only applicable financial
instrument of Alloy, is outside the scope of
SFAS&nbsp;No.&nbsp;150.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">FASB Interpretation
No.&nbsp;45</FONT></I><FONT size="2">&nbsp;&#151;
&#147;Guarantor&#146;s Accounting and Disclosure Requirements
for Guarantees, Including the Indirect Guarantees of
Indebtedness to Others&#148; (&#147;FIN No.&nbsp;45&#148;). FIN
No.&nbsp;45 sets forth the disclosures to be made by a guarantor
in its interim and annual financial statements about its
obligations under guarantees issued. FIN No.&nbsp;45 also
clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement
provisions of FIN No.&nbsp;45 are applicable to guarantees
issued or modified after December&nbsp;31, 2002. The application
of FIN No.&nbsp;45 did not result in additional disclosure in
Alloy&#146;s fiscal 2003 financial statements and did not have a
material impact on its fiscal 2003 consolidated results of
operations or financial position.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">FASB Interpretation
No.&nbsp;46</FONT></I><FONT size="2">&nbsp;&#151;
&#147;Consolidation of Variable Interest Entities.&#148;
(&#147;FIN&nbsp;46&#148;). FIN&nbsp;46 requires the
consolidation of entities that cannot finance their activities
without the support of other parties and that lack certain
characteristics of a controlling interest, such as the ability
to make decisions about the entity&#146;s activities via voting
or similar rights. An entity that consolidates a variable
interest entity is the primary beneficiary of the entity&#146;s
activities. FIN&nbsp;46 applied immediately to variable interest
entities created after January&nbsp;31, 2003, and required
application in the first period ending after December&nbsp;15,
2003 for entities in which an enterprise holds a variable
interest entity that it acquired before February&nbsp;1, 2003.
The adoption of FIN&nbsp;46 did not have a material impact on
the Company&#146;s consolidated results of operations or
financial position. In December of 2003, the FASB revised
FIN&nbsp;46 (&#147;FIN&nbsp;46R&#148;), which delayed the
required implementation date for variable interest entities
until the end of the first reporting period that ends after
March&nbsp;15, 2004. FIN&nbsp;46R applies to our financial
</FONT>

<P align="center"><FONT size="2">F-18
</FONT>

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<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">statements for the period ending April&nbsp;30,
2004. We do not believe the adoption of FIN&nbsp;46R will have a
material impact on our consolidated results of operations or
financial position.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Emerging Issues Task Force
02-16</FONT></I><FONT size="2">&nbsp;&#151; &#147;Accounting by
a Customer (including a Reseller) for Certain Consideration
Received from a Vendor&#148; (&#147;EITF&nbsp;02-16&#148;).
EITF&nbsp;02-16 addresses the accounting by a reseller for
consideration received from a vendor. A consensus was reached
that cash consideration is presumed to be a reduction in the
price of a vendor&#146;s product that should be recognized as a
reduction of cost of sales. However, this presumption can be
overcome when the consideration received is for the
reimbursement of specific, identifiable and incremental costs of
the reseller. In that event, the consideration, subject to a
threshold, is recognized as a reduction in selling, general and
administrative expenses. The provisions of EITF&nbsp;02-16 are
effective for all new arrangements, or modifications to existing
arrangements, entered into after December&nbsp;31, 2002. The
release did not have a significant effect on the Company&#146;s
results of operations or financial position.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Emerging Issues Task Force
02-17</FONT></I><FONT size="2">&nbsp;&#151; &#147;Recognition of
Customer Relationship Intangible Assets Acquired in a Business
Combination&#148; (&#147;EITF&nbsp;02-17&#148;). EITF&nbsp;02-17
may impact Alloy&#146;s acquisitions as it establishes that
customer lists, customer contracts and the related customer
relationships are intangible assets to be recognized as assets
apart from goodwill. Effective October&nbsp;25, 2002, the
Company adopted the provisions of this EITF for the business
combinations consummated and goodwill impairment test performed.
As a result of adopting these provisions, Alloy identified
customer relationships as part of its application of purchase
accounting. This identification of customer relationships
reduced the amount of recorded goodwill relating to the
acquisitions. As a result, the amount of goodwill subject to the
annual impairment test was reduced.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Emerging Issues Task Force
03-01</FONT></I><FONT size="2">&nbsp;&#151; &#147;The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments&#148; (&#147;EITF&nbsp;03-01&#148;). EITF&nbsp;03-01
establishes additional disclosure requirements for each category
of FAS&nbsp;115 investments in a loss position. EITF&nbsp;03-01
requires disclosure of the aggregate amount of unrealized
losses, and the aggregate related fair value of their
investments with unrealized losses. Those investments are
required to be segregated by those in a loss position for less
than twelve months and those in a loss position for greater than
twelve months. Additionally, certain qualitative disclosures
should be made to clarify a circumstance whereby an
investment&#146;s fair value that is below cost is not
considered other-than-temporary. The disclosure requirements
were effective for the fiscal year ended January&nbsp;31, 2004.
The accounting guidance of EITF&nbsp;03-01 will be effective for
reporting periods beginning after June&nbsp;15th and is not
expected to have a material effect on the Company&#146;s results
of operations or financial position.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the SEC issued a new disclosure
regulation, &#147;Conditions for Use of Non-GAAP Financial
Measures&#148; (&#147;Regulation&nbsp;G&#148;), which is
effective for all public disclosures and filings made after
March&nbsp;28, 2003. Regulation&nbsp;G requires public companies
that disclose or release information containing financial
measures that are not in accordance with GAAP to include in the
disclosure or release a presentation of the most directly
comparable GAAP financial measure and a reconciliation of the
disclosed non-GAAP financial measure to the most directly
comparable GAAP financial measure. Alloy became subject to
Regulation&nbsp;G in fiscal 2003 and believes that it is in
compliance in all material respects with the new disclosure
requirements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Acquisitions</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy completed four acquisitions during fiscal
2000, seven acquisitions during fiscal 2001, six acquisitions
during fiscal 2002 and three significant acquisitions during
fiscal 2003. Alloy&#146;s acquisition strategy is to purchase
companies that can reach Generation&nbsp;Y consumers through
media, marketing services and/or direct marketing. In executing
its acquisition strategy, one of the primary drivers in
identifying and executing a specific transaction is the
existence of, or the ability to, expand the Company&#146;s wide
range of media and marketing assets so that advertisers and
marketers will have the ability to target the approximate
60&nbsp;million Generation&nbsp;Y consumers in many different
ways.
</FONT>

<P align="center"><FONT size="2">F-19
</FONT>

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<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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&#146;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 allocations of the purchase prices for the
fiscal 2003 acquisitions are subject to revision based on the
final determination of the fair value of the assets acquired and
liabilities assumed as of the dates of acquisition. For all
acquisitions that involve escrowed shares, the value of these
shares has been included in the initial purchase price
allocation. Any subsequent changes are reflected as an
adjustment to goodwill. The amounts allocated to goodwill for
certain acquisitions may also change in the future pending the
outcome of other contingent arrangements, such as earn-outs, as
described below. A description of Alloy&#146;s significant
acquisitions completed during fiscal 2001, fiscal 2002 and
fiscal 2003 is as follows:
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Significant Fiscal 2001
    acquisitions</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">CASS Communications</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, Alloy acquired of all the capital
stock of CASS Communications, Inc. (&#147;CASS&#148;), an
Illinois corporation, founded in 1968, with a principal place of
business in Evanston, Illinois. CASS&#146;s contracted media and
promotional channels, including college and high school
newspapers, reach students on college and high school campuses
via outdoor and display media assets, and provide marketers with
full service event production and promotion capability. To
complete the acquisition of CASS, Alloy exchanged
1,720,392&nbsp;shares of unregistered common stock, having a
value of $23.1&nbsp;million, of which 258,059&nbsp;shares were
placed in escrow in accordance with the terms of the related
agreements; $9.7&nbsp;million in cash; additional shares of
Alloy common stock if CASS exceeded certain earnings targets
over the 12-month period following the acquisition; and a
contingent note, which note expired in April 2002 without
payments being made thereunder. In addition, no additional
shares of Alloy common stock were issued since the earnings
targets were not reached over the 12-month period following the
acquisition. In August 2002, the 258,059&nbsp;shares of common
stock held in escrow were released. Cash paid during fiscal 2002
for costs related to the acquisition was approximately
$1.8&nbsp;million. The total cost of this acquisition, including
acquisition costs was $35.4&nbsp;million. In connection with the
acquisition, Alloy has recorded approximately $36.2&nbsp;million
of goodwill representing the net excess of purchase price over
the fair value of the net assets acquired. In addition, Alloy
identified specific intangible assets consisting of the
following (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded a $400,000 impairment of CASS&#146;s trademarks. The
results of CASS&#146;s operations have been included in
Alloy&#146;s financial statements since August 2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Dan&#146;s Competition</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September 2001, Alloy acquired of all of the
outstanding capital stock of Dan&#146;s Competition, Inc.
(&#147;Dan&#146;s Comp&#148;), an Indiana corporation,
incorporated in 1996, with a principal place of business in Mt.
Vernon, Indiana. Dan&#146;s Comp is a direct marketer to teenage
boys and a distribution brand in the action sports market. To
complete the acquisition of Dan&#146;s Comp, Alloy exchanged
2,081,037&nbsp;shares of unregistered common stock, having a
value of $25.2&nbsp;million (or $12.34&nbsp;per share on the
transaction date) of which 370,370&nbsp;shares were placed
</FONT>

<P align="center"><FONT size="2">F-20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">in escrow in accordance with the terms of the
related agreements; $11.0&nbsp;million in cash; and two
contingent promissory notes, which notes expired in November
2002 without any payments being made thereunder. The escrowed
shares were released in October 2002. An additional
37,037&nbsp;shares were issued in connection with a final
working capital determination. The resulting additional purchase
price of $721,000 ($19.47&nbsp;per share) has been allocated to
goodwill. The escrowed shares were released in October 2002. The
total cost of this acquisition, including acquisition costs, was
$37.0&nbsp;million. In connection with the acquisition, Alloy
has recorded approximately $27.8&nbsp;million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mailing lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademark
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded an approximate $1.1&nbsp;million impairment charge
related to Dan&#146;s Comp&#146;s trademark. In addition, Alloy
determined that the non-competition agreement, property and
equipment, and mailing list were impaired and recorded charges
for $209,000, $159,000 and $749,000, respectively. The results
of Dan&#146;s Comp&#146;s operations have been included in
Alloy&#146;s financial statements since September 2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">360 Youth</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2001, Alloy acquired substantially
all of the assets of the 360 Youth business of MarketSource
Corporation, a Delaware corporation. The 360 Youth business
focuses on providing marketing and promotional services targeted
at teenagers and young adults, including acquiring and placing
advertising and other promotional materials or otherwise
targeting the Generation&nbsp;Y market in all forms of media,
and developing, staging and promoting events targeted at the
Generation&nbsp;Y market. Alloy acquired 360 Youth to expand its
range of media assets. To complete the acquisition of 360 Youth,
Alloy exchanged 1,839,520&nbsp;shares of unregistered common
stock, having a value of $30.1&nbsp;million of which
283,286&nbsp;shares were placed in escrow in accordance with the
terms of the related agreements; $13.4&nbsp;million in cash; and
warrants to purchase up to 110,000&nbsp;shares of Alloy common
stock. In accordance with its terms, one warrant may be
exercised at a price of $13.78&nbsp;per share with respect to
50,000&nbsp;shares of common stock on or after November&nbsp;26,
2002 and prior to November&nbsp;26, 2007, and with respect to
the remaining 50,000&nbsp;shares of common stock, on or after
November&nbsp;26, 2003 and prior to November&nbsp;26, 2008. The
second warrant for 10,000&nbsp;shares is currently exercisable
at a price of $13.78&nbsp;per share and expires on
November&nbsp;25, 2007. The fair value of the warrants was
established as $950,000 using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%,
volatility of 50%, risk-free interest rate of 4.61% and expected
life of 6.5&nbsp;years. In fiscal 2002, Alloy paid $645,000 in
cash as additional consideration under the earnout provisions of
the acquisition agreement. Additionally in March 2003, Alloy
issued as additional consideration 1,545,947&nbsp;shares of
Alloy common stock, having a value of $7.7&nbsp;million because
360 Youth exceeded certain earnings targets over the 12-month
period following the acquisition. The escrowed shares were
released in November 2002 after the resolution of all
acquisition-related contingencies. The total cost of this
acquisition, including acquisition costs, was
$53.5&nbsp;million. In connection with the acquisition, Alloy
has recorded approximately $50.1&nbsp;million of goodwill
representing the net excess of purchase price over
</FONT>

<P align="center"><FONT size="2">F-21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">the fair value of the net assets acquired. In
addition, Alloy identified specific intangible assets consisting
of the following (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The results of 360 Youth&#146;s operations have been
included in Alloy&#146;s financial statements since November
2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Significant Fiscal 2002
    Acquisitions</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Girlfriends LA</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In March 2002, Alloy acquired GFLA, Inc.
(&#147;Girlfriends LA&#148;), a California corporation that is a
direct marketer of apparel to young girls. Alloy acquired all of
the issued and outstanding shares of capital stock of
Girlfriends LA for $7.2&nbsp;million in cash, of which $875,000
initially was placed in escrow ($100,000 was released to Alloy
to cover certain acquisition liabilities in May, 2002 and in
June 2003 $530,000 was released to the sellers and $245,000 was
returned to Alloy), 20,000&nbsp;shares of Alloy common stock
valued at $283,000, and warrants to purchase up to
100,000&nbsp;shares of Alloy common stock valued at $691,000.
Total cash paid including acquisition costs, net of cash
acquired approximated $7.8&nbsp;million. The total cost of this
acquisition, including acquisition costs, was $8.8&nbsp;million.
Alloy recorded approximately $7.5&nbsp;million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">146</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mailing lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">550</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
determined that the trademarks of $490,000 were impaired. In
addition, Alloy determined that the remaining carrying amount of
the non-competition agreement of $23,000 was impaired. As a
result, Alloy recognized the impairment expense in its fourth
quarter of fiscal 2003. The website was previously fully
amortized and the mailing lists will be used by the Alloy and
dELiA*s direct marketing brands. The results of Girlfriends
LA&#146;s operations have been included in Alloy&#146;s
financial statements since March 2002. Alloy plans to
discontinue the production of the Girlfriends LA catalog during
fiscal 2004.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Student Advantage Marketing Group</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2002, Alloy acquired substantially all of
the assets of the events and promotions business of Student
Advantage, Inc. in exchange for $6.5&nbsp;million in cash, and
up to $1.5&nbsp;million of future performance-based cash
consideration. The $1.5&nbsp;million cash performance-based
consideration has been paid in full. In addition, the parties
agreed to extend an escrow created in connection with another
acquisition between them and allow Alloy
</FONT>

<P align="center"><FONT size="2">F-22
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">to make claims against such escrow for breaches
by Student Advantage of the Student Advantage Marketing Group
Asset Purchase Agreement, which escrow has been released. Total
cash paid including acquisition costs, net of cash acquired,
approximated $8.2&nbsp;million. The total cost of this
acquisition, including acquisition costs, was $8.2&nbsp;million.
Alloy has recorded approximately $7.0&nbsp;million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Client relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The results of Student Advantage Marketing
Group&#146;s operations have been included in Alloy&#146;s
financial statements since May 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Market Place Media</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2002, Alloy acquired all of the issued
and outstanding stock of MPM Holding, Inc. (&#147;MPM
Holding&#148;), whose sole operating asset was Armed Forces
Communications, Inc., d/b/a/ Market Place Media, a major media
placement and promotions company serving the college,
multi-cultural and military markets through print, broadcast,
out-of-home and event media. As part of the Company&#146;s
acquisition strategy, Market Place Media expands the
Company&#146;s media assets and provides advertisers with a
greater access to the Generation&nbsp;Y consumer. Alloy paid
$48.0&nbsp;million in cash to complete the acquisition, subject
to adjustment based upon the outcome of a final working capital
audit, $4.3&nbsp;million of which was placed into escrow as
security for the satisfaction of the indemnification obligations
of MPM Holdings, and $1.0&nbsp;million of which was placed into
a supplemental escrow as security for the collection of certain
accounts receivable of Armed Forces Communications, Inc. The
$5.3&nbsp;million placed into escrow was released during 2003.
Alloy paid $1.5&nbsp;million as part of the working capital
adjustment during the second half of fiscal 2002 and paid an
additional $1.6&nbsp;million as a working capital adjustment in
May 2004. As of January&nbsp;31, 2004, total cash paid including
acquisition costs, net of cash acquired approximated
$50.1&nbsp;million. The total cost of this acquisition,
including acquisition costs and net of cash acquired, was
$52.2&nbsp;million. Alloy has recorded approximately
$43.7&nbsp;million of goodwill representing the net excess of
purchase price over the fair value of the net assets acquired.
In addition, Alloy identified specific intangible assets
consisting of the following (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Client relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded an approximate $1.0&nbsp;million impairment charge of
Market Place Media&#146;s trademarks. The results of Market
Place Media&#146;s operations have been included in Alloy&#146;s
financial statements since July 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">YouthStream Media Networks</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2002, Alloy acquired substantially all
of YouthStream Media Networks, Inc.&#146;s high school and
college targeted marketing and media assets, which included over
20,000 out-of-home display media boards in
</FONT>

<P align="center"><FONT size="2">F-23
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">high schools and on college campuses, media
placement capabilities in college and high school newspapers,
and event marketing services and contracts. Alloy paid
$7.0&nbsp;million in cash to complete the acquisition, subject
to adjustment based upon the outcome of a final working capital
audit. Alloy paid $231,000 for the working capital adjustment
during fiscal 2002. Total cash paid including acquisition costs,
net of cash acquired approximated $7.5&nbsp;million. The total
cost of this acquisition, including acquisition costs, was
$7.5&nbsp;million. Alloy has recorded approximately
$4.5&nbsp;million of goodwill representing the net excess of
purchase price over the fair value of the net assets acquired.
In addition, Alloy identified specific intangible assets
consisting of the following (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Client relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded a $135,000 impairment charge of YouthStream Media
Networks&#146; trademark. The results of YouthStream Media
Networks&#146; operations have been included in Alloy&#146;s
financial statements since August 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Career Recruitment Media</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, Alloy acquired substantially
all of the assets of Career Recruitment Media, Inc., an Illinois
corporation (&#147;CRM&#148;). Alloy paid approximately
$2.3&nbsp;million in cash and issued a warrant valued at $43,000
to purchase up to 10,000&nbsp;shares of Alloy common stock to
complete the acquisition. In connection with this acquisition,
Alloy was given the option to purchase the remaining assets of
Career Recruitment Media, which option it exercised in September
2003. Total cash paid including acquisition costs, net of cash
acquired approximated $2.4&nbsp;million. The total cost of this
acquisition, including acquisition costs, was $2.5&nbsp;million.
Alloy has recorded approximately $2.2&nbsp;million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33&nbsp;months</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Client relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33&nbsp;months</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30&nbsp;months</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The results of CRM&#146;s operations have been
included in Alloy&#146;s financial statements since November
2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Old Glory</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, Alloy acquired Old Glory
Boutique Distributing, Inc. (&#147;Old Glory&#148;), a
Connecticut corporation, a direct marketer of music and
entertainment lifestyle products including apparel, accessories
and collectibles through direct mail catalogs and the internet.
Alloy paid approximately $9.6&nbsp;million to complete the
</FONT>

<P align="center"><FONT size="2">F-24
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">acquisition, of which $1.2&nbsp;million was held
in escrow. In April 2004, $300,000 of such escrowed cash was
released to Alloy and the remaining escrowed funds were released
to the sellers. Total cash paid including acquisition costs, net
of cash acquired, approximated $10.1&nbsp;million. The total
cost of this acquisition, including acquisition costs, net of
cash acquired, approximated $10.1&nbsp;million. Alloy has
recorded approximately $9.5&nbsp;million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mailing lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded an approximate $300,000 impairment charge related to
Old Glory&#146;s trademarks. In addition, Alloy determined that
the carrying amounts of the non-competition agreement of
$144,000 and the website of $31,000 were impaired. As a result,
Alloy recognized the associated expense of $175,000 in its
fourth quarter of fiscal 2003. The mailing lists will be used by
the other Alloy direct marketing brands. The results of Old
Glory&#146;s operations have been included in Alloy&#146;s
financial statements since December 2002. Alloy plans to
discontinue the production of the Old Glory catalog during
fiscal 2004.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Significant Fiscal 2003
    Acquisitions</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">OCM Direct, Inc., Collegiate Carpets, Inc. and
    Carepackages, Inc.</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003, Alloy acquired substantially all of
the assets and liabilities of OCM Direct, Inc., Collegiate
Carpets, Inc. and Carepackages, Inc., wholly owned subsidiaries
of Student Advantage, Inc., which companies were in the business
of direct marketing to college students and their parents a
variety of college or university endorsed products. These
businesses have been transferred to Alloy&#146;s wholly owned
subsidiaries, On Campus Marketing, LLC, Collegiate Carpets, LLC
and Carepackages, LLC. Alloy paid approximately
$15.6&nbsp;million in cash $1.0&nbsp;million of which was placed
into escrow, and assumed a $5.0&nbsp;million credit facility to
complete the acquisition. As of January&nbsp;31, 2004, the total
cash paid including acquisition costs, net of cash acquired,
approximated $15.4&nbsp;million. The total cost of this
acquisition, net of cash acquired and including acquisition
costs, is estimated to be $15.5&nbsp;million. In addition, Alloy
paid off the $5.0&nbsp;million credit facility during the second
quarter. Alloy has recorded approximately $16.3&nbsp;million of
goodwill representing the excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">811</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48-58 months</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-25
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The operations of this acquisition have been included
in Alloy&#146;s financial statements since May 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">dELiA*s</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September 2003, Alloy acquired all of the
outstanding stock of dELiA*s Corp. (&#147;dELiA*s&#148;), a
multi-channel retailer that markets apparel, accessories and
home furnishings to teenage girls and young women. dELiA*s
reaches its customers through the dELiA*s catalog,
www.dELiAs.com and 61 dELiA*s retail stores. Through the
acquisition of dELiA*s, Alloy seeks to generate financial
savings by consolidating operations and eliminating duplicate
functions, improve catalog circulation productivity by combining
name databases and establish a retail store presence that may be
expanded over time. These key transaction drivers supported the
acquisition price and the associated goodwill resultant from the
purchase of dELiA*s. Alloy paid approximately $50.1&nbsp;million
to complete the acquisition. As of January&nbsp;31, 2004, the
total cash paid including acquisition costs, net of cash
acquired, approximated $46.2&nbsp;million. The total cost of
this acquisition, net of cash acquired and including acquisition
costs, was approximately $47.0&nbsp;million, of which
$43.6&nbsp;million was recorded as goodwill. Estimated
acquisition costs consist of professional fees of approximately
$2.8&nbsp;million and other costs of approximately $600,000. The
results of dELiA*s&#146; operations have been included in
Alloy&#146;s financial statements since September 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Allocation of Purchase Price</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purchase price has been allocated based on an
estimate of the fair value of assets acquired and liabilities
assumed. To the extent that the Company&#146;s estimates need to
be adjusted for the preacquisition contingencies predominately
related to taxes (other than income taxes) and other matters for
which the Company is awaiting additional information for its
completion of purchase price allocation, it will make such
adjustments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purchase price for dELiA*s was allocated as
follows (in thousands):
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Book value of net liabilities acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,767</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjusted for write-off of intangible assets and
    deferred financing cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjusted book value of net liabilities acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,997</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Remaining allocation:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill(b)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring costs(c)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,523</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustment to fair value property, plant and
    equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,542</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reduction of deferred revenues related to a
    licensing agreement that has no future legal performance
    obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reduction of deferred rent liability in
    conjunction with the fair valuation of leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of leasehold liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,360</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total purchase price allocation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since Alloy&#146;s initial allocation of the
purchase price in the third quarter of fiscal 2003, its
estimates have been revised. The adjusted estimated book value
of net liabilities assumed increased $3.2&nbsp;million primarily
related to sales tax liabilities. In addition, estimates have
been revised for intangible assets ($285,000 decrease),
property, plant, and equipment ($2.5&nbsp;million decrease),
leasehold liabilities ($1.4&nbsp;million increase), legal costs
</FONT>

<P align="center"><FONT size="2">F-26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">($114,000 decrease) and goodwill
($7.3&nbsp;million increase). These revisions reflect
Alloy&#146;s greater understanding of dELiA*s net liabilities
since the acquisition date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;Trademarks are deemed to have indefinite
lives and therefore are not amortized but are reviewed for
impairment annually. The fair values of the amortizable
intangible assets are as follows (in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Years)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mailing Lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition Agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold Interests
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;In accordance with the requirements of
SFAS&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets,&#148; the goodwill and the acquired indefinite-lived
intangibles associated with the acquisition will not be
amortized. Goodwill resulting from this acquisition was
allocated to the direct marketing segment during the fourth
quarter of fiscal 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;As of the completion of the acquisition,
Alloy management began to assess and formulate a plan to exit
certain activities of dELiA*s. The plan, as initially adopted,
specifically identified significant actions to be taken to
complete the plan and activities of dELiA*s that will not be
continued, including the method of disposition and location of
those activities. At the completion of the acquisition, Alloy
was contractually obligated to pay certain termination costs to
three executives of dELiA*s. Management has estimated
liabilities related to the net present value of these
termination costs to be approximately $2.7&nbsp;million, of
which approximately $1.3&nbsp;million has been paid as of
January&nbsp;31, 2004. The remaining costs have resulted in an
increase to short-term and long-term liabilities, which are
estimated to be approximately $100,000 and $1.3&nbsp;million,
respectively. In addition, upon completion of its assessment,
management estimated $3.8&nbsp;million of store exit and lease
costs and severance related to 17 dELiA*s retail stores. These
expenses are accrued as current liabilities as of
January&nbsp;31, 2004.
</FONT>

<P align="center"><FONT size="2">F-27
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following dELiA*s condensed balance sheet
discloses the amounts assigned to each major asset and liability
at September&nbsp;4, 2003, the date of acquisition (amounts in
thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">9/4/2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="center" valign="top">
    <B><FONT size="2">LIABILITIES</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and other current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,409</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,692</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NET ASSETS ACQUIRED
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">CollegeClub.com</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2003, Alloy acquired CollegeClub.com,
a website providing e-mail, clubs, chat, personal sites, student
discounts and advice. Alloy paid approximately $800,000 to
complete the acquisition and could pay an additional $400,000 of
cash consideration based on future performance. The total
purchase price of this acquisition, including acquisition costs,
was approximately $1.3&nbsp;million. Total cash paid, including
acquisition costs, approximated $853,000. Alloy has recorded
approximately $1.1&nbsp;million of goodwill representing the net
excess of purchase price over the fair value of the net assets
acquired. In addition, Alloy identified specific intangible
assets consisting of the following (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">indefinite</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The results of CollegeClub.com&#146;s operations have
been included in Alloy&#146;s financial statements since
November 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Unaudited Pro Forma Financial
    Information</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following unaudited pro forma financial
information presents the consolidated operations of the Company
as if the fiscal 2003 acquisition of dELiA*s had occurred as of
the beginning of fiscal 2003 for the fiscal 2003 results and as
of the beginning of fiscal 2002 for the fiscal 2002 results. The
unaudited pro forma
</FONT>

<P align="center"><FONT size="2">F-28
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">information excludes the impact of all other
fiscal 2003 acquisitions since they are not considered to be
material to the Company&#146;s consolidated financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following unaudited pro forma financial
information is provided for informational purposes only and
should not be construed to be indicative of the Company&#146;s
consolidated results of operations had the acquisition been
consummated on the date assumed and does not project the
Company&#146;s results of operations for any future period:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">For the Years Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands, except</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">per share data)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">436,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">439,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) before cumulative effect of change in
    accounting principle
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,540</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(100,318</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,843</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(100,318</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividend and accretion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss) available to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(257</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(102,262</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) attributable to common stockholders
    before cumulative effect of change in accounting principle per
    share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.41</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.48</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.41</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.48</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)available to common stockholders
    per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.01</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.48</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.01</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.48</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited pro forma financial information
above reflects the following pro forma adjustments:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">1.&nbsp;Elimination of historical amortization
    expense recorded by legacy dELiA*s related to definite-lived
    intangible assets.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">2.&nbsp;Recording of:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amortization expense related to the estimated
    fair value of identified intangible assets from the purchase
    price allocation, which are being amortized over their estimated
    useful lives which range from 2 to 6&nbsp;years, of
    approximately $529,000 in fiscal 2002 and $309,000 in fiscal
    2003;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the adjustment to increase interest expense from
    borrowings to finance the dELiA*s acquisition by approximately
    $2.9&nbsp;million in fiscal 2002 and $1.7&nbsp;million in fiscal
    2003;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the adjustment to decrease deferred rent expense
    by approximately $447,000 in fiscal 2002 and $266,000 in fiscal
    2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the adjustment to decrease depreciation expense
    by approximately $500,000 in fiscal 2002 and $292,000 in fiscal
    2003.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Goodwill and Intangible Assets</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2001, the FASB issued
SFAS&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets.&#148; Under SFAS&nbsp;No.&nbsp;142, goodwill and
intangible assets with indefinite lives that were acquired after
June&nbsp;30, 2001 are no longer amortized but instead evaluated
for impairment at least annually. With respect to goodwill and
intangibles with indefinite lives that were acquired prior to
July&nbsp;1, 2001, Alloy adopted the nonamortization provisions
of SFAS&nbsp;No.&nbsp;142 as of February&nbsp;1, 2002.
</FONT>

<P align="center"><FONT size="2">F-29
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table reconciles previously
reported net income as if the provisions of
SFAS&nbsp;No.&nbsp;142 had been in effect for the year ended
January&nbsp;31, 2002:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31, 2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Amounts in thousands</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reported net (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add back: goodwill amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,741</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjusted net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividends and accretion of
    discount
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) attributable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,617</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic (loss) attributable to common stockholders
    per share as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted (loss) attributable to common
    stockholders per share as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Impairment of Goodwill and Indefinite-Lived
    Intangible Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Due to the decline in catalog response rates,
operating profit and cash flows were lower than expected during
fiscal 2003. Based on that trend, as well as the addition and
integration of dELiA*s, the cash flow projections could not
support the goodwill within the direct marketing reporting unit.
During the fourth quarter of fiscal 2003, a goodwill impairment
charge of $56.7&nbsp;million was recognized since the carrying
amount of the reporting unit&#146;s goodwill exceeded the
implied fair value of the goodwill. Any subsequent adjustment to
purchase price related to the dELiA*s acquisition resultant from
the finalization of the preacquisition contingencies related to
taxes (other than income taxes) and certain other matters for
which the Company is awaiting additional information for its
completion of purchase price allocation, may result in an
adjustment to the impairment charge. Also, during the fourth
quarter of fiscal 2003, an impairment charge for trademarks of
$1.9&nbsp;million and $2.0&nbsp;million was recognized in the
direct marketing segment and the sponsorship and other segment,
respectively. In the direct marketing segment, a trademark
impairment charge of $1.1&nbsp;million was recognized since the
carrying value of the reporting unit&#146;s trademarks was
greater than the fair value of the reporting unit&#146;s
trademarks primarily as a result of lower future estimated
operating profit and cash flows related to the impaired
trademarks. An additional $800,000 impairment charge was
recognized due to the discontinued use of certain trademarks. In
the sponsorship and other segment, an impairment charge of
$1.0&nbsp;million was recorded since the carrying value of the
reporting unit&#146;s trademarks was greater than the fair value
of the reporting unit&#146;s trademarks primarily as a result of
lower future estimated operating profit and cash flows related
to the impaired trademarks. An additional $1.0 impairment charge
was recognized due to the discontinued use of certain
trademarks. Estimates of trademark fair value were determined
using the Income Approach. Refer to Note&nbsp;2, &#147;Summary
of Accounting Policies, Goodwill and Other Indefinite-Lived
Intangible Assets Impairment,&#148; for further details
regarding the procedure for evaluating goodwill for impairment.
</FONT>

<P align="center"><FONT size="2">F-30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in the carrying amount of goodwill
for the years ended January&nbsp;31, 2003 and January&nbsp;31,
2004 are as follows (in thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross balance, beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">205,120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill acquired during the year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(56,748</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross balance, end of the year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">301,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated goodwill amortization, prior to the
    adoption of SFAS&nbsp;142
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net balance, end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">270,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Intangible Assets Related to Businesses
    Acquired</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The acquired intangible assets as of
January&nbsp;31, 2003 and January&nbsp;31, 2004 were as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="36%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">January&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">January&nbsp;31, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted Average</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period (Years)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortizable intangible assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mailing Lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Noncompetition Agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing Rights
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Client Relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold Interests
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nonamortizable intangible assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2002, Alloy purchased a two-year right
to serve as the agent for selling, licensing and marketing the
media assets of a youth-oriented website for $4.9&nbsp;million.
This contract was amended in May 2003 and then again in
September 2003. The Company continually monitors the operating
performance of this contract. In the fourth quarter of fiscal
2002, it was determined that based on future cash flow
estimates, the carrying amount of the marketing rights would not
be recoverable over the remaining term of the contract.
Accordingly, an impairment charge of $1.0&nbsp;million was
recognized as additional amortization expense in the sponsorship
segment, representing the excess of the net carrying amount of
the intangible asset over its estimated fair value, determined
as the discounted estimated future cash flows under the
contract. This two-year right was fully amortized by the end of
the fourth quarter of fiscal 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The weighted average amortization period for
acquired intangible assets subject to amortization is
approximately 3.4&nbsp;years. The amortization expense related
to fiscal 2001, 2002 and 2003 was $574,000, $5.6&nbsp;million
and $7.9&nbsp;million, respectively. The estimated remaining
amortization expense for each of the next five fiscal years
through the fiscal year ending January&nbsp;31, 2009 is
$5.4&nbsp;million, $2.7&nbsp;million, $1.1&nbsp;million,
$543,000 and $398,000, respectively.
</FONT>

<P align="center"><FONT size="2">F-31
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exchange
Transaction</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2000, Alloy entered into a
financial and strategic arrangement with Liberty Digital, Inc.
(&#147;LDIG&#148;), a subsidiary of Liberty Media Group, Inc.
(&#147;LMG&#148;), which has since been merged into LMG
pursuant, to which Alloy issued 2,922,694&nbsp;shares of its
common stock having a fair value of $35.1&nbsp;million, or
$12&nbsp;per share, to a subsidiary of LDIG in exchange for
$10&nbsp;million in cash and 837,740&nbsp;shares of LDIG common
stock having a fair value of $19.5&nbsp;million. Alloy
subsequently collared 600,000 LDIG shares (see Note&nbsp;2
&#147;Derivative Instruments and Hedging Activities&#148;). As
of January&nbsp;31, 2004, Alloy holds no LDIG or LMG shares. The
Alloy common shares issued to LDIG represented 19.9% of the then
issued and outstanding common stock of Alloy immediately prior
to the transaction. Subsequent to the transaction, LDIG had a
16.6% ownership interest in Alloy&#146;s issued and outstanding
common stock. As a result of subsequent issuances of Alloy
common stock, as of January&nbsp;31, 2004, LMG had an ownership
interest in Alloy of approximately 6.94%.
</FONT>

<P align="left">
<B><FONT size="2">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable
Securities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fair values of taxable auction securities,
tax-advantaged auction securities, corporate debt securities and
equity securities are based upon quoted market prices. The
following is a summary of available-for-sale marketable
securities at January&nbsp;31, 2003 and 2004, respectively:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unrealized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unrealized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Holding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Holding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Cost</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gains</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Losses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">January&nbsp;31, 2003</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Taxable auction securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate debt securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,168</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total available-for-sale securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,005</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">January&nbsp;31, 2004</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Taxable auction securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax-advantaged auction securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate debt securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total available-for-sale securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amortized cost and estimated fair value of
debt securities available-for-sale at January&nbsp;31, 2004 by
contractual maturity are as follows:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unrealized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Cost</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">January&nbsp;31, 2004</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due in one year or less
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due after one year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,598</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-32
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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. As of the end of fiscal 2003, the
Company held a portfolio of $24.6&nbsp;million in fixed income
marketable securities for which, due to the conservative nature
of its investments and relatively short duration did not result
in any impairment charge.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Realized Gain on Marketable Securities and
    Write-off of Investments, Net</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In fiscal 2002, realized gains from sales of
marketable securities were approximately $97,000. Net realized
gains on the sales of marketable securities were approximately
$66,000 in fiscal 2003. In addition, the Company wrote off
$313,000 of minority investments in private companies during the
fourth quarter of fiscal 2003, since these private companies
either declared bankruptcy or ceased operations.
</FONT>

<P align="left">
<B><FONT size="2">7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and
Equipment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;31, 2003 and 2004, property and
equipment, net, consists of the following:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer equipment under capitalized leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Machinery and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Office furniture and fixtures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Building
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,088</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: accumulated depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,007</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Due to declines in catalog response rates, the
Company performed recoverability analysis of long-lived assets
in the direct marketing segment during the fourth quarter of
fiscal 2003. The recoverability of long-lived assets were
measured by comparing the carrying amount of a group of assets
to estimated undiscounted future cash flows expected to be
generated by that group of assets. Since the carrying amounts of
certain groups of assets exceeded their estimated future cash
flows, an impairment charge of $1.3&nbsp;million was recognized
in the direct marketing segment. Alloy determined that the
carrying amounts of the non-competition agreement of $144,000
related to Old Glory, the website of $31,000 related to Old
Glory and the non-competition agreement of $23,000 related to
Girlfriends LA were impaired as the Company plans to discontinue
marketing its Old Glory and Girlfriends LA brands. Other assets
of these businesses, namely mailing lists, were not deemed
impaired as they are and can be used by other parts of the
direct marketing segment. In addition, the future cash flows
related to Dan&#146;s Comp could not fully support the carrying
amount of Dan&#146;s Comp&#146;s long-lived assets. As a result,
an impairment charge related to the non-competition agreement of
$209,000, property and equipment of $159,000 and mailing list of
$749,000 was recorded.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation and amortization expense related to
property and equipment (including capitalized leases) was
approximately $2.6&nbsp;million, $4.2&nbsp;million, and
$6.7&nbsp;million for fiscal 2001, 2002, and 2003 respectively.
</FONT>

<P align="center"><FONT size="2">F-33
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current
Liabilities</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Mortgage Note Payable</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dELiA*s was subject to certain covenants under a
mortgage loan agreement relating to dELiA*s&#146; fiscal 1999
purchase of a distribution facility in Hanover, Pennsylvania,
including a covenant to maintain a fixed charge coverage ratio.
As a result of its financial performance, the Company was in
default of the fixed charge coverage ratio. The default has been
waived for the duration of the loan. On April&nbsp;19, 2004,
dELiA*s entered into a Mortgage Note&nbsp;Modification Agreement
extending the term for five years with a fifteen-year
amortization schedule. The modified loan bears interest at LIBOR
plus 225&nbsp;basis points. The modified loan is guaranteed by
Alloy and Alloy is subject to a quarterly financial covenant to
maintain a funds flow coverage ratio with which Alloy is not
currently in compliance. As a result of this default, the
$2.9&nbsp;million January&nbsp;31, 2004 outstanding principal
balance related to dELiA*s mortgage loan agreement is classified
as a current liability on the accompanying consolidated balance
sheets. The mortgage loan is secured by the building and related
property.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accrued Expenses and Other Current
    Liabilities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;31, 2003 and 2004, accrued
expenses and other current liabilities consist of the following:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued acquisition costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued sales tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Credits due to customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current deferred tax liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Credit
Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2000, Alloy entered into a credit
agreement (the &#147;RBC Credit Agreement&#148;) with Royal Bank
of Canada, Grand Cayman (North America No.&nbsp;1), (the
&#147;Lender&#148;). The RBC Credit Agreement was for a duration
of three years from inception, expired October&nbsp;19, 2003,
and called for the Lender to make available to Alloy revolving
credit loans and letters of credit in the aggregate principal
amount not to exceed $15.1&nbsp;million the proceeds of which
would be used to finance the working capital requirements of
Alloy and its subsidiaries in the ordinary course of business
and for other general corporate purposes. This facility was
originally collateralized by marketable securities and related
derivative put options. As further discussed in Note&nbsp;2, as
a result of the settlement of the put options and sale of the
underlying securities, the facility limit was reduced from
$15.1&nbsp;million to $500,000. There were no amounts
outstanding at January&nbsp;31, 2002 or 2003 under the RBC
Credit Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dELiA*s has a credit agreement with Wells Fargo
Retail Finance LLC (the &#147;Wells Fargo Credit
Agreement&#148;). The Wells Fargo Credit Agreement consists of a
revolving line of credit that permits dELiA*s to borrow up to
$20&nbsp;million. Until October&nbsp;29, 2004, dELiA*s retains
the right to increase the limit to $25&nbsp;million at its
option. The credit line is secured by dELiA*s&#146; assets and
borrowing availability fluctuates depending on dELiA*s&#146;
levels of inventory and certain receivables. The Wells Fargo
Credit Agreement contains certain covenants and default
provisions, including a limitation on dELiA*s&#146; capital
expenditures. At dELiA*s&#146; option, borrowings under this
facility bear interest at Wells Fargo Bank&#146;s prime rate
plus 25&nbsp;basis points or at LIBOR plus 250&nbsp;basis
points, but at no time will the rate be less than 4.25%. A fee
of 0.375%&nbsp;per year is assessed monthly on the unused
portion of the line of credit as defined in the agreement. The
facility matures in April
</FONT>

<P align="center"><FONT size="2">F-34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">2006. The credit facility is considered a current
liability because the lender has access to dELiA*s lockbox
facility and the agreement contains a subjective acceleration
clause. In addition, the Wells Fargo Credit Agreement contains a
change of control event, which was triggered when Alloy
purchased dELiA*s and allows the lender to call the loan at any
time. The lender has agreed to waive any default caused in
connection with Alloy&#146;s acquisition of dELiA*s. As of
January&nbsp;31, 2004, there was a zero balance on the loan, the
outstanding documentary letters of credit were $29,000, the
standby letters were $2.9&nbsp;million, and unused available
credit was $5.4&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Letters of Credit</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;31, 2004, Alloy had $543,000
in a standby letter of credit with a bank for the purpose of
securing a lease transaction relating to computer equipment. The
letter of credit is fully secured by cash on deposit at the bank
as of January&nbsp;31, 2004 and matures in fiscal 2007. In
addition, Alloy had a $682,000 guidance line for standby and
commercial letters of credit, of which $118,000 was outstanding
as of January&nbsp;31, 2004 for the purpose of securing an
operating lease that Alloy maintains.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">10.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Long-Term Debt</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Issuance of Convertible Debt</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;23, 2003, Alloy issued and sold
$65.0&nbsp;million aggregate principal amount of 20-Year
Convertible Senior Debentures due August&nbsp;1, 2023 (the
&#147;Debentures&#148;) in the 144A private placement market.
Lehman Brothers, Inc., CIBC World Market Corp., J.P.&nbsp;Morgan
Securities Inc., and S.G. Cowen Securities Corporation were the
initial purchasers (the &#147;Initial Purchasers&#148;) of the
Debentures. The Debentures have an annual coupon rate of 5.375%,
payable in cash semi-annually. The Debentures are convertible at
any time prior to maturity, unless previously redeemed, at the
option of the holders into shares of Alloy&#146;s common stock
at a conversion price of approximately $8.375&nbsp;per share,
subject to certain adjustments. The calculation of diluted loss
per share for fiscal 2003 excluded the conversion of these
securities as to include them in the calculation would be
anti-dilutive. The Debentures are Alloy&#146;s general unsecured
obligations and will be equal in right of payment to its
existing and future senior unsecured indebtedness; and are
senior in right of payment to all of its future subordinated
debt. Alloy may not redeem the Debentures until August&nbsp;1,
2008. On August&nbsp;20, 2003, Alloy issued and sold an
additional $4.3&nbsp;million aggregate principal amount of the
Debentures to the Initial Purchasers pursuant to the exercise of
an over-allotment option granted to the Initial Purchasers in
the original purchase agreement. Alloy used a significant
portion of the net proceeds from this offering for the
acquisition of dELiA*s and intends to use the remaining portion
for future acquisitions, working capital, capital expenditures
and general corporate purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On February&nbsp;17, 2004, Alloy approved the
repurchase of up to $5.0&nbsp;million aggregate principal amount
of the Debentures. As of May&nbsp;26, 2004, none of the
Debentures have been repurchased.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of Alloy&#146;s Debentures is
estimated based on quoted market prices. As of January&nbsp;31,
2004, the fair value of the Debentures was $66.5&nbsp;million.
Long-term debt consists of the following:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="78%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Amounts in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">thousands</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">5.375%&nbsp;Convertible Debentures due
    August&nbsp;1, 2023, with interest payable semi-annually on
    February 1 and August 1
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital leases and notes payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,043</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-35
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series&nbsp;A
and Series&nbsp;B Redeemable Convertible Preferred
Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On February&nbsp;16, 2001, the Board of Directors
of Alloy authorized the designation of a series of Alloy&#146;s
$0.01&nbsp;par value preferred stock consisting of
1,850,000&nbsp;shares of the authorized unissued preferred stock
as a Series&nbsp;A Convertible Preferred Stock (the
&#147;Series&nbsp;A Preferred Stock&#148;). The Series&nbsp;A
Preferred Stock had a par value of $0.01&nbsp;per share with a
liquidation preference of $9.50&nbsp;per share. The
Series&nbsp;A Preferred Stock paid an annual dividend of 3%,
payable in additional shares of Series&nbsp;A Preferred Stock.
In addition, the Series&nbsp;A Preferred Stock was mandatorily
redeemable on February&nbsp;16, 2006 at a price of
$9.50&nbsp;per share, plus accrued and unpaid cash dividends
thereon. The Series&nbsp;A Preferred Stock was convertible at
the holder&#146;s option into common stock of Alloy as is
determined by dividing $9.50 by the initial conversion price of
$11.40 and multiplying by each share of Series&nbsp;A Preferred
Stock to be converted. The initial conversion price is subject
to adjustment for stock splits, stock dividends and combinations
of common stock and other events as specified in the related
Certificate of Designation, Preferences and Rights of
Series&nbsp;A Convertible Preferred Stock of Alloy. At any time
after February&nbsp;15, 2003, if the reported closing sales
price of Alloy&#146;s common stock exceeds $25.00&nbsp;per share
for a period of ten consecutive trading days, Alloy has the
option to require the holders of all, but not less than all,
shares of the Series&nbsp;A Preferred Stock to convert their
shares into shares of Alloy common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Also, on February&nbsp;16, 2001, Alloy received
an investment of $10&nbsp;million from St. Paul Venture Capital
VI, LLC (&#147;SPVC VI&#148;) in exchange for
1,052,632&nbsp;shares of Alloy&#146;s Series&nbsp;A Preferred
Stock. In addition, SPVC VI received a warrant to
purchase&nbsp;307,018&nbsp;shares of Alloy common stock at an
exercise price of $12.83&nbsp;per share. The fair value of the
warrant issued in connection with the Series&nbsp;A Preferred
Stock was estimated as $1.5&nbsp;million using the Black-Scholes
option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 75%, risk-free interest rate of 5.50%
and expected life of two years. Based upon the terms of this
transaction, there was a beneficial conversion feature
recognized as of the date of the transaction in the amount of
approximately $2.8&nbsp;million, which reduced earnings
attributable to common stockholders in the year ended
January&nbsp;31, 2002. The beneficial conversion feature was
recorded as a direct charge against accumulated deficit, with a
corresponding increase in additional paid-in capital. As a
result of warrants issued and the related expenses of the
transaction, there was a discount of $1.5&nbsp;million upon
issuance of the Series&nbsp;A Preferred Stock, which was being
accreted over the five-year period prior to mandatory redemption
and reflected as a charge against additional paid-in capital and
a corresponding increase to the carrying value of the
Series&nbsp;A Preferred Stock. In addition, the accrued
dividends on the Series&nbsp;A Preferred Stock were also charged
to additional paid-in capital, with a corresponding increase in
the carrying value of the Series&nbsp;A Preferred Stock. On
October&nbsp;25, 2001, SPVC VI converted all
1,052,632&nbsp;shares of Series&nbsp;A Preferred Stock into
877,193&nbsp;shares of Alloy common stock. At that time, the
remaining unamortized discount of $1.3&nbsp;million was charged
to additional paid-in capital, with a corresponding increase to
Series&nbsp;A Preferred Stock and the then carrying value of
$8.5&nbsp;million was converted into common stock and additional
paid-in capital. The additional accretion recorded upon
conversion has been reflected as a reduction of earnings
attributable to common stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On June&nbsp;20, 2001, the Board of Directors of
Alloy authorized the designation of a series of Alloy&#146;s
$.01&nbsp;par value preferred stock consisting of
3,000&nbsp;shares of the authorized unissued preferred stock as
a Series&nbsp;B Convertible Preferred Stock (the
&#147;Series&nbsp;B Preferred Stock&#148;). The Series&nbsp;B
Preferred Stock has a par value of $.01&nbsp;per share with a
liquidation preference of $10,000&nbsp;per share. The
Series&nbsp;B Preferred Stock pays an annual dividend of 5.5%,
payable in either additional shares of Series&nbsp;B Preferred
Stock or cash, at Alloy&#146;s option. In addition, the
Series&nbsp;B Preferred Stock is mandatorily redeemable on
June&nbsp;19, 2005 at a price of $10,000&nbsp;per share, plus
accrued and unpaid cash dividends thereon. The Series&nbsp;B
Preferred Stock is convertible at the holder&#146;s option into
common stock of Alloy as is determined by dividing $10,000 by
the initial conversion price of $11.70 and multiplying by each
share of Series&nbsp;B Preferred Stock to be converted. The
initial conversion price is subject to adjustment for stock
splits, stock dividends and combinations of common stock and
other events as specified in the related Certificate of
Designation, Preferences and Rights of Series&nbsp;B Convertible
Preferred Stock of Alloy. At any time after June&nbsp;20, 2002,
if the reported closing sales price of Alloy&#146;s common stock
exceeds $20.48&nbsp;per
</FONT>

<P align="center"><FONT size="2">F-36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">share for a period of twenty consecutive trading
days, Alloy has the option to require the holders of all, but
not less than all, shares of the Series&nbsp;B Preferred Stock
to convert their shares into shares of Alloy common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Also, on June&nbsp;20, 2001, Alloy received an
investment of $18.1&nbsp;million from various investors in
exchange for 1,815&nbsp;shares of Alloy&#146;s Series&nbsp;B
Preferred Stock, which were immediately convertible into
1,551,282&nbsp;shares of Alloy common stock. In addition, the
Series&nbsp;B investors received warrants to purchase a total of
502,492&nbsp;shares of Alloy common stock at an exercise price
of $12.46&nbsp;per share. The fair value of the warrants issued
in connection with the Series&nbsp;B Preferred Stock was
estimated as $2.4&nbsp;million using the Black-Scholes
option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 75%, risk-free interest rate of 5.50%
and expected life of two years. Based upon the terms of this
transaction, there was a beneficial conversion feature reflected
as of the date of the transaction in the amount of approximately
$4.0&nbsp;million, which reduced earnings attributable to common
stockholders in the year ended January&nbsp;31, 2002. Similar to
the accounting treatment for the Series&nbsp;A Preferred Stock,
the beneficial conversion feature was recorded as a direct
charge against accumulated deficit, with a corresponding
increase in additional paid-in capital. As a result of the
warrants issued and the related expenses of the transaction,
there was a discount of $3.9&nbsp;million upon issuance of the
Series&nbsp;B Preferred Stock, which is being accreted over the
four-year period prior to mandatory redemption and reflected as
a charge against additional paid-in capital and a corresponding
increase to the carrying value of the Series&nbsp;B Preferred
Stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In fiscal 2001, an investor converted
50&nbsp;shares of Series&nbsp;B Preferred Stock into
44,032&nbsp;shares of Alloy common stock. The impact upon
conversion was the recognition of additional accretion of $92,
which has been reflected as a reduction of earnings attributable
to common stockholders. In fiscal 2002, investors converted
152&nbsp;shares of Series&nbsp;B Preferred Stock into
136,469&nbsp;shares of Alloy common stock. The impact upon
conversion was the recognition of additional accretion of
$235,000, which has been reflected as a reduction of earnings
attributable to common stockholders. In fiscal 2003, investors
converted 273&nbsp;shares of Series&nbsp;B Preferred Stock into
261,505&nbsp;shares of Alloy common stock. The impact upon
conversion was the recognition of additional accretion of
$255,000, which has been reflected as a reduction of earnings
attributable to common stockholders.
</FONT>

<P align="left">
<B><FONT size="2">12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common Stock
Transactions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;1, 2001, Alloy entered into
definitive purchase agreements to sell 2,575,000&nbsp;shares of
newly issued common stock, $.01&nbsp;par value, in a private
placement to both new institutional investors and existing
stockholders for an aggregate purchase price of
$32.2&nbsp;million. Net proceeds from this private placement of
$30.0&nbsp;million were used for acquisitions or general
corporate purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;25, 2002, Alloy entered into a
definitive purchase agreement to sell 1,367,366&nbsp;shares of
newly issued common stock, $.01&nbsp;par value, and warrants to
purchase a total of 888,788&nbsp;shares of Alloy&#146;s common
stock at an exercise price of $21.94&nbsp;per share in a private
placement to an investor for an aggregate purchase price of
$30.0&nbsp;million. In February 2002, pursuant to the warrant
agreement and as a result of the Company&#146;s follow-on
offering, the warrants increased to 915,555&nbsp;shares and the
exercise price decreased to $21.30&nbsp;per share. In July and
August 2003, pursuant to the warrant agreement and as a result
of the Company&#146;s Debenture offering, the number of shares
for which warrants are exercisable increased to
1,019,291&nbsp;shares and the exercise price decreased to
$19.13&nbsp;per share. Net proceeds from this private placement
of approximately $28.0&nbsp;million were used for acquisitions
and general corporate purposes. The fair value of the warrants
issued in connection with this financing was estimated as
$8.2&nbsp;million using the Black-Scholes option-pricing model
with the following assumptions: dividend yield of 0%, volatility
of 50%, risk-free interest rate of 5.29% and expected life of
five years. In connection with this transaction, Alloy and a
company in which the investor had a minority investment entered
into a one-year marketing services agreement in which Alloy has
provided an agreed-upon set of advertising and promotional
services in exchange for a $3.0&nbsp;million fee.
</FONT>

<P align="center"><FONT size="2">F-37
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On February&nbsp;21, 2002, Alloy sold
4,000,000&nbsp;shares of its newly issued common stock,
$.01&nbsp;par value, in an underwritten public offering at a
price of $15.21&nbsp;per share, for an aggregate purchase price
of $60.8&nbsp;million. Net proceeds from this public offering of
$56.6&nbsp;million were used for acquisitions and general
corporate purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;29, 2003, the Company&#146;s
Board authorized a stock repurchase program for the repurchase
by Alloy of up to $10.0&nbsp;million of its common stock from
time to time in the open market at prevailing market prices or
in privately negotiated transactions. Alloy has repurchased
600,000&nbsp;shares for approximately $3.0&nbsp;million under
this plan through January&nbsp;31, 2004. All 600,000&nbsp;shares
were repurchased during the first quarter of fiscal 2003.
</FONT>

<P align="left">
<B><FONT size="2">13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholder
Rights Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2003, Alloy&#146;s Board of Directors
adopted a Stockholder Rights Plan (the &#147;Plan&#148;) in
which the Company declared a dividend of one preferred stock
purchase right (a &#147;Right&#148;) for each outstanding share
of common stock, par value $0.01&nbsp;per share, of the Company.
Each Right entitles the registered holder to purchase from the
Company a unit consisting of one one-hundredth of a share (a
&#147;Unit&#148;) of Series&nbsp;C Junior Participating
Preferred Stock, $0.01&nbsp;par value per share (the
&#147;Series&nbsp;C Preferred Stock&#148;), at a purchase price
of $40.00&nbsp;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&nbsp;percent (20%) or more of the Company&#146;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&nbsp;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&nbsp;14, 2013, unless earlier
exercised, redeemed or exchanged. Each one one-hundredth of a
share of Series&nbsp;C Preferred Stock has the same voting
rights as one share of Alloy common stock, and each share of
Series&nbsp;C Preferred Stock has 100&nbsp;times the voting
power of one share of Alloy common stock.
</FONT>

<P align="left">
<B><FONT size="2">14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based
Compensation Plans</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock options:</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During fiscal 1997, Alloy&#146;s Board of
Directors adopted a Stock Option Plan (the &#147;1997
Plan&#148;). The 1997 Plan, as restated, authorizes the granting
of options, the exercise of which would allow up to an aggregate
of 4,000,000&nbsp;shares of Alloy&#146;s common stock to be
acquired by the holders of the options. The number of shares
under the 1997 Plan authorized for the granting of options was
raised to 8,000,000&nbsp;pursuant to a shareholder vote on
July&nbsp;21, 2000 and further increased to
10,000,000&nbsp;pursuant to a shareholder vote on July&nbsp;24,
2003. The options can take the form of Incentive Stock Options
(&#147;ISOs&#148;) or Non-qualified Stock Options
(&#147;NQSOs&#148;). Options may be granted to employees,
directors and consultants. ISOs and NQSOs are granted in terms
not to exceed ten years and become exercisable as set forth when
the option is granted. Options may be exercised in whole or in
part. Vesting terms of the options range from immediately
vesting to a ratable vesting period of nine years. The exercise
price of the Options must be at least equal to 100% of the fair
market price of Alloy common stock on the date of grant. In the
case of a plan participant who owns directly or by reason of the
applicable attribution rules in Section&nbsp;424(d) of the
United States Internal Revenue Code of 1986, as amended, more
than 10% of the total combined voting power of all classes of
stock of Alloy, the exercise price shall not be less than 110%
of the fair market value on the date of grant. ISOs must be
exercised within five to ten years from the date of grant
depending on the participant&#146;s ownership in Alloy. The
exercise price of all NQSOs granted under the 1997 Plan shall be
determined by Alloy&#146;s Board of Directors at the time of
grant. During fiscal 2002, Alloy&#146;s Board of Directors
adopted amendments to the 1997 Plan to permit the grant of
shares of the Company&#146;s common stock on a tax-deferred
basis to eligible individuals, subject to the otherwise
applicable terms, conditions, requirements and other limitations
the Board of Directors shall deem appropriate within the limits
of its powers under the 1997 Plan. The 1997 Plan will terminate
on June&nbsp;30, 2007.
</FONT>

<P align="center"><FONT size="2">F-38
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During fiscal 2002, Alloy&#146;s Board of
Directors adopted a new Stock Option Plan (the &#147;2002
Plan&#148;), which permits the granting of options, the exercise
of which would allow up to an aggregate of 500,000&nbsp;shares
of Alloy&#146;s common stock to be acquired by the holders of
the options. During fiscal 2003, Alloy&#146;s Board of Directors
authorized an Amendment to the 2002 Plan increasing from 500,000
to 2,000,000 the aggregate number of shares which may be issued
under such plan. The options can take the form of NQSOs. Options
may be granted to employees, directors and consultants. Options
may be granted in terms not to exceed ten years and become
exercisable as set forth when the option is granted. Options may
be exercised in whole or in part. Vesting terms of the options
range from immediate vesting to a ratable vesting period of nine
years. The exercise price of all options granted under the 2002
Plan shall be determined by Alloy&#146;s Board of Directors at
the time of grant. Subsequently during fiscal 2002, Alloy&#146;s
Board of Directors adopted amendments to the 2002 Plan to permit
the grant of shares of the Company&#146;s common stock on a
tax-deferred basis to eligible individuals, subject to the
otherwise applicable terms, conditions, requirements and other
limitations the Board of Directors shall deem appropriate within
the limits of its powers under the 2002 Plan. The 2002 Plan will
terminate on July&nbsp;11, 2012.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, during fiscal 2003, Alloy, through
its acquisition of dELiA*s Corp., assumed the dELiA*s Inc.
Amended and Restated 1996 Stock Incentive Plan, dELiA*s Inc.
1998 Stock Incentive Plan and the iTurf Inc. Amended and
Restated 1999 Stock Incentive Plan. Upon consummation of the
acquisition, Alloy amended these plans to provide, among other
things, that the common stock of Alloy, not dELiA*s Corp., would
be issuable upon exercise of options granted under the plans.
Pursuant to NASDAQ Marketplace Rule&nbsp;4350-5, Alloy may not
issue grants under these plans to any person who was employed by
Alloy at the time the acquisition of dELiA*s Corp. was
consummated. Alloy may, however, issue grants under these plans
to persons who were employed by dELiA*s Corp. before, or have or
will become employed by Alloy or any of its subsidiaries after,
the time Alloy&#146;s acquisition of dELiA*s Corp. was
consummated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy applies APB No.&nbsp;25 in accounting for
options issued under the 1997 Plan, the 2002 Plan and the
assumed dELiA*s plans and, accordingly, recognizes compensation
expense for the difference between the fair value of the
underlying common stock and the grant price of the option at the
date of grant. Alloy applies SFAS&nbsp;No.&nbsp;123 to issuances
of stock-based compensation to non-employees and, accordingly,
recognizes the fair value of the stock options and warrants
issued as compensation expense over the service period or
vesting period, whichever is shorter. Compensation expense
recognized for the issuance of stock options to non-employees
approximated $114,000, $0, and $0 for fiscal 2001, 2002, and
2003, respectively. The fair value assumptions used for awards
to non-employees are consistent with the assumptions listed for
the pro forma impact of awards to employees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of Alloy&#146;s stock
option activity:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">For the Years Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding, beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,009,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,016,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,791,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options granted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,253,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,697,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,012,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options exercised
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(939,634</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(190,846</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,256</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options canceled or expired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,306,447</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(730,635</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,093,715</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding, end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,016,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,791,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,683,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercisable, end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,013,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,333,285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted-average fair value of options granted
    during the year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-39
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For the Years Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk-free interest rates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.43</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.62</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.97</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected lives
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp;years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected volatility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected dividend yields
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Summarized information about Alloy&#146;s stock
options outstanding and exercisable at January&nbsp;31, 2004 is
as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="22%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Range</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$0.60
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.0&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,348</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$2.64&nbsp;&#150; $2.79
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.2&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$4.07&nbsp;&#150; $6.09
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,842,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.3&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$6.19&nbsp;&#150; $9.23
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,178,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.7&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">948,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$9.29&nbsp;&#150; $13.80
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,230,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.6&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,119,133</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$13.95&nbsp;&#150; $20.90
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,391,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.7&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,115,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$21.06&nbsp;&#150; $23.20
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.9&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$0.60&nbsp;&#150; $23.20
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,683,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.9&nbsp;Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,333,285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Warrants:</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes all common stock
and preferred stock activity:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="59%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">For the Years Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding, beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">473,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,690,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,813,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants issued
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,808,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">136,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants exercised
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(590,843</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,843</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding, end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,690,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,813,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,917,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;31, 2004, the unexercised
warrants have a weighted average exercise price of
$16.19&nbsp;per share and a weighted average remaining
contractual term of 5.19&nbsp;years. As of January&nbsp;31,
2004, all outstanding warrants are exercisable. The calculation
of diluted (loss) earnings per share for fiscal 2001, 2002 and
2003 excludes the warrants listed above because to include them
in the calculation would be antidilutive. Therefore the warrants
did not have an impact on the calculation of earnings
attributable to common stockholders per share.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Restricted Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003 Alloy&#146;s Board of Directors
authorized the issuance of 300,000&nbsp;shares of Common Stock
as restricted stock under the 1997 Plan, which shares were
issued in March 2004. The shares issued pursuant to the 1997
Plan are subject to restrictions on transfer and certain other
conditions. During the restriction period, plan participants are
entitled to vote and receive dividends on such shares. Upon
issuance of the 300,000&nbsp;shares pursuant to the 1997 Plan, a
deferred compensation expense equivalent to the market value of
the shares on the
</FONT>

<P align="center"><FONT size="2">F-40
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">date of grant was charged to stockholders&#146;
equity and is being amortized over the approximate twenty-month
vesting period. The compensation expense amortized with respect
to the restricted shares during fiscal 2003 was approximately
$989,000. On January&nbsp;31, 2004, a total of 150,000 of the
300,000&nbsp;shares vested.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Employee Stock Purchase Plan</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 1999, Alloy adopted the 1999 Employee
Stock Purchase Plan (the &#147;Employee Stock Plan&#148;). The
Employee Stock Plan allows eligible employees, as defined in the
Employee Stock Plan, to purchase Alloy&#146;s common stock
pursuant to section&nbsp;423 of the Internal Revenue Code of
1986, as amended. A total of 500,000&nbsp;shares of Alloy&#146;s
common stock have been made available for sale under the
Employee Stock Plan, subject to certain capitalization
adjustments specified in the plan document. The Employee Stock
Plan will terminate on April&nbsp;16, 2009 unless terminated
sooner by the Board of Directors. The Employee Stock Plan allows
for purchases of common stock under a series of six-month
offering periods commencing February&nbsp;1 and August&nbsp;1 of
each year, the frequency of dates and duration of which may be
changed by the Board of Directors. Eligible employees can elect
to participate through payroll deductions between 1% and 10% of
compensation that will be credited to the participant&#146;s
account. The terms of the Employee Stock Plan provide for the
granting of an option on the first day of each six-month
offering period (&#147;Offering Date&#148;) to each eligible
employee to purchase Alloy&#146;s common stock on the last day
of each six-month offering period (&#147;Exercise Date&#148;) at
a price equal to the lower of 85% of the fair market value of a
share of Alloy&#146;s common stock at the Offering Date or 85%
of the fair market value of a share of Alloy&#146;s common stock
on the Exercise Date. These shares are considered
noncompensatory for the determination of compensation expense
under APB No.&nbsp;25, but the difference between the fair value
of the amount of the benefit paid related to acquiring such
shares at a discount is included as compensation expense in the
pro forma disclosures required by SFAS&nbsp;No.&nbsp;123 above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The number of shares under the Employee Stock
Plan will be determined by dividing an eligible employee&#146;s
accumulated contributions prior to the Exercise Date and
retained in the participant&#146;s account as of the Exercise
Date by the lower of 85% of the fair market value of a share of
Alloy&#146;s common stock on the Offering Date, or 85% of the
fair market value of a share of Alloy&#146;s common stock on the
Exercise Date. Unless a participant withdraws from the Employee
Stock Plan, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the relative
six-month offering period.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Shares Reserved for Future
    Issuance:</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Shares reserved for future issuance at
January&nbsp;31, 2003 and 2004 are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">For the Years Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,259,544</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,981,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stock Option Plans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,969,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,675,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,813,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,917,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employee Stock Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">451,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">289,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">5.375%&nbsp;Senior Convertible Debentures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,274,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,494,038</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,138,065</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-41
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
Taxes</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of the benefit
(provision)&nbsp;for income taxes consist of the following
(amounts in thousands) for the years ended January&nbsp;31:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">673</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(286</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,777</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,586</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Income Tax Expense/(Benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The difference between the total expected tax
expense (benefit) (using the statutory rates of 34%, 35% and
35%, respectively) and tax expense for fiscal 2001, 2002 and
2003 is accounted for as follows:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="73%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computed expected tax (benefit) expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State taxes, net of federal benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-deductible expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill Impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Change in valuation allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(50</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total expense (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-42
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The types of temporary differences that give rise
to significant portions of the Company&#146;s deferred tax
assets and liabilities are set out as follows at
January&nbsp;31,:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accruals and reserves
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,096</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating loss and capital loss carryforwards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,437</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Valuation allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,755</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(36,309</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,622</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(749</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Identified intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,576</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,308</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(565</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total deferred tax liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,016</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,399</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For federal income tax purposes, Alloy has unused
net operating loss (&#147;NOL&#148;) carryforwards of
$59.1&nbsp;million at January&nbsp;31, 2004 expiring through
2023 and capital loss carryforwards of $3.5&nbsp;million at
January&nbsp;31, 2004 expiring from January&nbsp;31, 2006
through January&nbsp;31, 2008. The U.S.&nbsp;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. Based on the level of taxable
income for the year ended January&nbsp;31, 2003 and projections
of future taxable income, results of the acquisitions and
building of economies of scale, management believed it was more
likely than not that Alloy would realize the benefits of the
deferred tax assets that were deductible during these periods,
net of the valuation allowance. Therefore, the Company recorded
a deferred tax benefit for a portion of the assets that had been
fully reserved. For the year ended January&nbsp;31, 2004, due to
a number of factors, including the fiscal 2003 taxable loss and
the acquisition of dELiA*s, management lowered its projections
of future taxable income, particularly for the next
15&nbsp;months. As a result of these lower projections of future
taxable income, management believes the future utilization of
the Company&#146;s deferred tax assets is no longer
more-likely-than-not. The Company has made the decision to fully
reserve the remaining net deferred tax asset by increasing the
valuation allowance via a $4.6&nbsp;million income tax provision
during the year ended January&nbsp;31, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The valuation allowance decreased by
$16.7&nbsp;million and increased by $33.6&nbsp;million during
fiscal years 2002 and 2003, respectively. If the entire deferred
tax assets were realized, $2.6&nbsp;million would be allocated
to equity related to the tax effect of the employees&#146; stock
option deductions. In addition, $22.4&nbsp;million would be
allocated
</FONT>

<P align="center"><FONT size="2">F-43
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">to goodwill related to acquired deferred tax
assets. The remaining deferred tax asset would reduce the income
tax expense.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On the Company&#146;s consolidated balance sheet,
at January&nbsp;31, 2003 and 2004, the current portion of the
deferred tax assets amounting to $7.0&nbsp;million, and none,
respectively is included in other current assets. The current
portion of the deferred tax liability amounting to approximately
$5.3&nbsp;million and none, respectively, is included in accrued
expenses and other current liabilities.
</FONT>

<P align="left">
<B><FONT size="2">16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net (Loss)
Earnings Per Share</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the computation of
net (loss) earnings per share. Alloy has applied the provisions
of Statement of Financial Accounting Standards No.&nbsp;128,
&#147;Earnings per Share&#148; in the calculation below. Amounts
are in thousands, except share and per share data.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">NUMERATOR:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Charge for beneficial conversion of Series&nbsp;A
    and Series&nbsp;B Redeemable Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,745</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividends and accretion on preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,013</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income attributable to common
    stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(77,159</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">DENOMINATOR:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Denominator for basic and diluted (loss) earnings
    attributable to common stockholders per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average basic common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,967,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,436,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,175,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Contingently issuable common stock pursuant to
    acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">959,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options to purchase common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">676,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average diluted common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,967,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,071,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,175,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic (loss) earnings attributable to common
    stockholders per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted (loss) earnings attributable to common
    stockholders per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For fiscal 2002, diluted earnings per common
share is based upon the weighted average number of common shares
outstanding during the period assuming the issuance of common
shares for all dilutive potential common shares outstanding.
</FONT>

<P align="center"><FONT size="2">F-44
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The calculation of diluted (loss) earnings per
share for fiscal 2001, 2002 and 2003 excludes the securities
listed below because to include them in the calculation would be
antidilutive. For purpose of this presentation, all securities
are assumed to be common stock equivalents and antidilutive:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options to purchase common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,016,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,115,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,326,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants to purchase common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,690,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,813,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,873,452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conversion of Series&nbsp;A and Series&nbsp;B
    Redeemable Convertible preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,576,822</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,506,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,377,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Contingently issuable common shares pursuant to
    acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,234,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conversion of 5.375%&nbsp;Convertible Debentures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,103,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,517,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,435,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,980,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commitments
and Contingencies</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Leases</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy leases dELiA*s retail stores, office space,
warehouse space and certain computer equipment under
noncancellable leases with various expiration dates through
2013. As of January&nbsp;31, 2004, future net minimum lease
payments were as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operating</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Sublease</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Year Ending January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Leases</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Leases</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Rent</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(365</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(313</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,852</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(319</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(203</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2009
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,503</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(151</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total minimum lease payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,542</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Imputed interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Some of dELiA*s retail store leases include
contingent rent clauses that will result in higher payments if
the store sales exceed expected levels. Some of Alloy&#146;s
operating leases also include renewal options and escalation
clauses with terms that are typical for the industry. In
addition, it is obligated to pay a proportionate share of
increases in real estate taxes and other occupancy costs for
space covered by its operating leases.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Rent expense was approximately $2.6&nbsp;million,
$3.3&nbsp;million, and $8.1&nbsp;million for fiscal 2001, 2002,
and 2003, respectively, under noncancellable operating leases.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Ordering, Fulfillment and Customer
    Service</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy entered into a master services agreement
with NewRoads, Inc., (&#147;New Roads&#148;), a third party
service organization, whereby New Roads provides Alloy with
comprehensive call center and order fulfillment services
</FONT>

<P align="center"><FONT size="2">F-45
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">in support of the Alloy, CCS, GFLA and Old Glory
direct marketing operations. All aspects relating to fulfillment
of customer orders are handled by New Roads, including receipt
and processing of customer orders, shipment of merchandise to
customers and customer service. In consideration for performance
of the services provided by New Roads during the contract term,
Alloy paid New Roads an initial start-up fee and is charged a
fixed fee per order processed plus a pass-through of the
variable costs, primarily labor, involved in order processing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the third quarter of fiscal 2003, Alloy
terminated its agreement with New Roads following its strategic
decision to transfer substantially all of its fulfillment
activities for its Alloy and CCS direct marketing units from New
Roads, to its recently acquired distribution center in Hanover,
Pennsylvania and to discontinue its Old Glory and Girlfriends LA
brands during fiscal 2004.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Sales Tax</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy does not collect sales or other similar
taxes on shipments of goods into most states. However, various
states or foreign countries may seek to impose sales tax
obligations on such shipments. A number of proposals have been
made at the state and local levels that would impose additional
taxes on the sale of goods and services through the Internet. A
successful assertion by one or more states that Alloy should
have collected or be collecting sales taxes on the sale of
products could have a material effect on Alloy&#146;s operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Litigation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about November&nbsp;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, James K. Johnson,&nbsp;Jr., Matthew C. Diamond,
BancBoston Robertson Stephens, Volpe Brown Whelan and Company,
Dain Rauscher Wessel and Ladenburg Thalmann&nbsp;&#38; Co., Inc.
The complaint purportedly was filed on behalf of persons
purchasing Alloy&#146;s common stock between May&nbsp;14, 1999
and December&nbsp;6, 2000 and alleges violations of
Sections&nbsp;11, 12(a)(2) and 15 of the Securities Act of 1933
(the &#147;Securities Act&#148;) and Section&nbsp;10(b) of the
Securities Exchange Act of 1934 (the &#147;&#146;34 Act&#148;)
and Rule&nbsp;10b-5 promulgated thereunder. On or about
April&nbsp;19, 2002, plaintiff filed an amended complaint
against Alloy, the individual defendants and the underwriters of
its initial public offering. The amended complaint asserts
violations of Section&nbsp;10(b) of the &#146;34 Act and mirrors
allegations asserted against scores of other issuers sued by
plaintiffs&#146; counsel. Pursuant to an omnibus agreement
negotiated with representatives of the plaintiffs&#146; counsel,
Messrs.&nbsp;Diamond and Johnson have been dismissed from the
litigation without prejudice. In accordance with the
Court&#146;s case management instructions, Alloy joined in a
global motion to dismiss the amended complaints, which were
filed by the issuers&#146; liaison counsel. By opinion and order
dated February&nbsp;19, 2003, the District Court denied in part
and granted in part the global motion to dismiss. With respect
to Alloy, the Court dismissed the Section&nbsp;10(b) claim and
let the plaintiffs proceed on the Section&nbsp;11 claim.
Accordingly, the remaining claim against Alloy will focus solely
on whether the registration statement filed in connection with
its initial public offering contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statement therein not
misleading. Although Alloy has not retained a damages expert at
this time, the dismissal of the Section&nbsp;10(b) claim likely
will reduce the potential damages that plaintiffs can claim.
Management believes that the remaining allegations against us
are without merit. The Company has retained Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, PC in connection with this matter.
Alloy participated in the Court-ordered mediation with the other
issuer defendants, the issuers&#146; insurers and plaintiffs to
explore whether a global resolution of the claims against the
issuers could be reached. To this end, a memorandum of
understanding setting forth the proposed terms of a settlement
was signed by counsel to several issuers, including Alloy&#146;s
counsel, which is not binding upon Alloy. In a press release
dated June&nbsp;26, 2003, plaintiffs&#146; counsel announced
that the memorandum of understanding had been signed, and that
the process of obtaining the approval of all parties to the
settlement was underway. Alloy is participating in that process.
Any definitive settlement, however, will require final approval
by the Court after notice to all class members and a fairness
hearing.
</FONT>

<P align="center"><FONT size="2">F-46
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about March&nbsp;8, 2003, several putative
class action complaints were filed in the United States District
Court for the Southern District of New York naming as defendants
Alloy, James K. Johnson,&nbsp;Jr., Matthew C. Diamond and Samuel
A. Gradess. The complaints purportedly were filed on behalf of
persons who purchased Alloy&#146;s common stock between
August&nbsp;1, 2002 and January&nbsp;23, 2003, and, among other
things, allege violations of Section&nbsp;10(b) and
Section&nbsp;20(a) of the &#146;34 Act and Rule&nbsp;10b-5
promulgated thereunder stemming from a series of allegedly false
and misleading statements made by Alloy to the market between
August&nbsp;1, 2002 and January&nbsp;23, 2003. At a conference
held on May&nbsp;30, 2003, the Court consolidated the actions
described above. On August&nbsp;5, 2003, Plaintiffs filed a
consolidated class action complaint (the &#147;Consolidated
Complaint&#148;) naming the same defendants, which supersedes
the initial complaint. Relying in part on information allegedly
obtained from former employees, the Consolidated Complaint
alleges, among other things, misrepresentations of Alloy&#146;s
business and financial condition and the results of operations
during the period from March&nbsp;16, 2001 through
January&nbsp;23, 2003 (the &#147;class period&#148;), which
artificially inflated the price of its stock, including without
limitation, improper acceleration of revenue, misrepresentation
of expense treatment, failure to properly account for and
disclose consignment transactions, and improper deferral of
expense recognition. The Consolidated Complaint further alleges
that during the class period the individual defendants and the
Company sold stock and completed acquisitions using Alloy&#146;s
stock. Alloy and the individual defendants filed a joint answer
to the Consolidated Complaint on September&nbsp;26, 2003. The
individual defendants have retained the law firm of Cahill,
Gordon&nbsp;&#38; Reindel in connection with this matter. Alloy
has retained the law firm of Katten Muchin Zavis Rosenman in
connection with this matter. Management believes that the
allegations against the Company and Messrs.&nbsp;Diamond,
Gradess and Johnson are without merit and intends to vigorously
defend the action.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dELiA*s currently is party to a purported class
action litigation, which originally was filed in two separate
complaints in Federal District Court for the Southern District
of New York in 1999 against dELiA*s Inc. and certain of its
officers and directors. These complaints were consolidated. The
consolidated complaint alleges, among other things, that the
defendants violated Rule&nbsp;10b-5 under the Securities
Exchange Act of 1934 by making material misstatements and by
failing to disclose certain allegedly material information
regarding trends in the business during part of 1998. The
parties have reached an agreement on a full settlement of the
action, which was approved by the court on April&nbsp;21, 2004.
The entire settlement amount will be covered by dELiA*s
insurance carrier.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about February&nbsp;1, 2002, a complaint
was filed in the Circuit Court of Cook County, Illinois naming
dELiA*s as a defendant. The complaint purportedly was filed on
behalf of the State of Illinois under the False Claims Act and
the Illinois Whistleblower Reward and Protection Act and seeks
unspecified damages and penalties for dELiA*s alleged failure to
collect and remit use tax on items sold by dELiA*s through its
catalogs and website to Illinois residents. On April&nbsp;8,
2004, the complaint was served on dELiA*s by the Illinois
Attorney General&#146;s Office, which assumed prosecution of the
complaint from the original filer. dELiA*s has retained the law
firm of Katten Muchin Zavis Rosenman in connection with this
matter. Management believes the proceedings against dELiA*s are
without merit and intends to defend the action vigorously.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy is also involved in additional legal
proceedings that have arisen in the ordinary course of business.
Alloy believes that other than those discussed above there is no
claim or litigation pending, the outcome of which could have a
material adverse effect on its financial condition or operating
results.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Guarantees</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has no significant guarantees.
</FONT>

<P align="left">
<B><FONT size="2">18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restructuring
Charges</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During fiscal 2002, the Company made the
strategic decision to outsource substantially all of its
fulfillment activities for its CCS unit to New Roads, Inc.
During the fourth quarter of fiscal 2002, the Company determined
that it would not be able to exit or sublease its existing
fulfillment facilities. In accordance with Emerging Issues
</FONT>

<P align="center"><FONT size="2">F-47
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">Task Force Issue No.&nbsp;94-3 and SAB
No.&nbsp;100, the Company recognized a restructuring charge of
approximately $2.6&nbsp;million in the fourth quarter of fiscal
2002 in its direct marketing segment, representing the future
contractual lease payments and the write-off of related
leasehold improvements. The Company did not incur any
significant personnel termination obligations as a result of the
facility closure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first quarter of fiscal 2003, the
Company made the strategic decision to outsource substantially
all of its fulfillment activities for its GFLA unit to New
Roads. The Company determined that it would not be able to
sublease its existing fulfillment facilities due to real estate
market conditions. In accordance with SFAS&nbsp;No.&nbsp;146,
&#147;Accounting for Costs Associated with Exit or Disposal
Activities&#145;(&#147;Statement No.&nbsp;146&#148;) and
SFAS&nbsp;No.&nbsp;144, the Company recognized a charge of
approximately $380,000 in the first quarter of 2003 in its
direct marketing segment, representing the future contractual
lease payments, severance and personnel costs, and the write-off
of related leasehold improvements. Included in the charge, the
Company incurred severance and personnel costs of $44,000 as a
result of this facility closure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the third quarter of fiscal 2003, the
Company made the strategic decision to transfer substantially
all of its fulfillment activities for its Alloy and CCS direct
marketing units to its recently acquired distribution center in
Hanover, Pennsylvania. The Company notified New Roads that it
would be exiting the New Roads&#146; facilities during the first
half of fiscal 2004 and as a result the Company was required to
pay New Roads an exit fee. In accordance with Statement
No.&nbsp;146, the Company recognized a charge of approximately
$350,000 in the third quarter of fiscal 2003 in its direct
marketing segment, representing future contractual exit
payments, which were paid in the fourth quarter of fiscal 2003.
The Company does not expect to incur any significant personnel
termination obligations as a result of exiting the New Roads
contract.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables summarize the Company&#146;s
restructuring activities (in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Contractual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance&nbsp;&#38;</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Type of Cost</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Impairments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Obligations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Personnel Costs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring Costs Fiscal 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments and Write-offs Fiscal 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(820</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(155</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(975</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring Costs Fiscal 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments and Write-offs Fiscal 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,185</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,260</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of the Company&#146;s restructuring
liability under contractual obligations related to a real estate
lease as of January&nbsp;31, 2003 and January&nbsp;31, 2004 is
as follows (in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CCS facility, San&nbsp;Luis Obispo, California
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company anticipates that the remaining
restructuring accruals will be settled by January&nbsp;31, 2006.
As of January&nbsp;31, 2004, the restructuring accruals are
classified on the Company&#146;s consolidated balance sheets as
a current liability and a long-term liability of approximately
$630,000 and $436,000 respectively.
</FONT>

<P align="left">
<B><FONT size="2">19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Segment
Reporting</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy currently has three reportable segments:
direct marketing, retail stores, and sponsorship and other. The
merchandise segment and the sponsorship and other segment were
identified during 2002. As a result of the change in composition
of its reportable segments, Alloy reclassified information prior
to 2002 to conform to the new presentation. During September
2003, Alloy changed the name of its catalog and online commerce
business
</FONT>

<P align="center"><FONT size="2">F-48
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">from the merchandise segment to the direct
marketing segment and identified a third reportable
segment&nbsp;&#151; retail stores. Alloy began operation of its
retail stores upon the acquisition of dELiA*s in September 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy&#146;s management reviews financial
information related to these reportable segments and uses the
measure of income from operations to evaluate performance and
allocated resources. The accounting policies of the segments are
the same as those described in Note&nbsp;2. Reportable data for
Alloy&#146;s reportable segments were as follows as of and for
the years ended January&nbsp;31, 2002, 2003, and 2004. (amounts
in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Total Assets</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Capital Expenditures</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">91,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">138,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,012</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">310,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">434,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Revenue</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Depreciation and</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156,821</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,849</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">185,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,494</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,622</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">299,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,053</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Operating (Loss) Income</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,967</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(63,296</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,574</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,852</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,292</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,074</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,897</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,686</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain (loss) on sales of marketable securities and
    write-off of investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Loss) income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,823</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(69,936</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Included in Operating (Loss) Income are expenses
in fiscal 2002 of $2.6&nbsp;million related to the direct
marketing segment for a restructuring charge to write-off
abandoned facility lease and equipment and a $1.0&nbsp;million
amortization expense to the sponsorship segment representing the
reduction in net carrying amount of a marketing right that had
exceeded its discounted estimated future cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Included in Operating (Loss) Income in fiscal
2003 are expenses in the direct marketing segment of
$58.6&nbsp;million representing the impairment of goodwill and
other indefinite-lived intangible assets, an asset impairment
charge of $1.3&nbsp;million, and a $730,000 expense due to
restructuring charges representing future contractual lease
payments, exit costs, severance and personnel costs, and the
write-off of related leasehold improvements relating to the
closing of the Company&#146;s GFLA facility and exiting from the
New Roads
</FONT>

<P align="center"><FONT size="2">F-49
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">fulfillment facilities. Additionally, the
sponsorship and other segment includes a trademark impairment
charge of $2.0&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of goods sold for the fiscal year 2003
included costs related to sponsorship and other revenues of
$2.4&nbsp;million. Costs of goods sold for fiscal year 2002, had
no costs related to sponsorship and other revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying amount of goodwill by reportable
segment as of January&nbsp;31, 2003 and January&nbsp;31, 2004
was as follows (in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Goodwill</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">270,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent
Events</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;26, 2004, Alloy acquired all of the
issued and outstanding stock of InSite Advertising, Inc. InSite
is a national out-of-home media company targeting consumers
between the ages of 18-34. OnSite Promotions, a division of
InSite, is an event-marketing and promotions company that
creates customized programs for its clients. The InSite network
and the OnSite division further extend Alloy&#146;s reach to the
18-34 demographic through its promotional marketing arm, AMP
(Alloy Marketing and Promotions) and its media and marketing
division, 360 Youth. To complete the acquisition, Alloy paid
approximately $5.1&nbsp;million in cash and issued shares of
common stock valued at approximately $2.9&nbsp;million plus
additional consideration if certain financial performance
targets are met.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy did not file its Annual Report on
Form&nbsp;10-K for the fiscal year ended January&nbsp;31, 2004
by the extended due date of April&nbsp;30, 2004. As a result, on
May&nbsp;4, 2004, Alloy received a letter from the Nasdaq staff
indicating that Alloy is not in compliance with the filing
requirements for continued listing on Nasdaq as set forth in
Nasdaq Marketplace Rule&nbsp;4310(c)(14). This letter is
automatically sent out by the Nasdaq staff when a late filing
occurs. As stated in the Nasdaq letter, Alloy&#146;s common
stock is subject to delisting from the Nasdaq Stock Market
because of such late filing. Additionally, because of the late
filing, the fifth character &#147;E&#148; was appended to
Alloy&#146;s trading symbol at the opening of business on
May&nbsp;6, 2004.
</FONT>

<P align="center"><FONT size="2">F-50
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Quarterly
Results (Unaudited)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth unaudited
financial data for each of Alloy&#146;s last eight fiscal
quarters. Amounts are in thousands, except share and per share
data:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Year Ended January&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Year Ended January&nbsp;31, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">First</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Second</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Third</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fourth</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">First</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Second</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Third</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fourth</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net direct marketing revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,530</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail store revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other activities revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,956</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,993</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,193</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,885</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,433</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,560</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,687</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,960</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,469</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling and marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,498</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,985</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,422</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of goodwill and other intangible
    assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,651</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill and other indefinite-lived
    intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of long-lived assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,315</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,091</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,936</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,782</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,504</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(65,783</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">586</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(970</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,317</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Realized (loss) on marketable securities and
    write-off of investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">735</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(746</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(569</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,274</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,347</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">336</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,251</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(248</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">342</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(321</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,817</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(67,689</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividends and accretion of
    discount
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">605</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">702</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss) attributable to common
    stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(841</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,023</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,210</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(68,085</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net income (loss) attributable to common
    stockholders per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.65</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted net income (loss) attributable to common
    stockholders per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.65</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-51
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">SCHEDULE&nbsp;II</FONT></B>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">VALUATION AND QUALIFYING ACCOUNTS</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beginning of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Usage/</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additions</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deductions</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">End of Period</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">777</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,724</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,098</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,336</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reserve for sales returns and allowances:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">766</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,034</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Valuation allowance for deferred tax assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unamortized discount on Series&nbsp;A and
    Series&nbsp;B Convertible Preferred Stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-52
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED BALANCE SHEETS</FONT></B>

<DIV align="center">
<B><FONT size="2">Unaudited Financial Statements.</FONT></B>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">except share and per</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CURRENT ASSETS:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketable securities available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,021</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid catalog costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL CURRENT ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">107,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketable securities available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,176</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">280,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible and other assets, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,985</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">445,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="9"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="9" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CURRENT LIABILITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,630</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mortgage note payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses and other current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL CURRENT LIABILITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Convertible Debentures Due 2023
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;B Redeemable Convertible Preferred
    Stock, $10,000&nbsp;per share liquidation preference;
    $.01&nbsp;par value; 3,000&nbsp;shares designated; mandatorily
    redeemable on June&nbsp;19, 2005; 1,340 and 1,340&nbsp;shares
    issued and outstanding, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,434</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">STOCKHOLDERS&#146; EQUITY:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred Stock; $.01&nbsp;par value;
    10,000,000&nbsp;shares authorized of which 1,850,000&nbsp;shares
    designated as Series&nbsp;A Redeemable Convertible Preferred
    Stock and 3,000&nbsp;shares designated as Series&nbsp;B
    Redeemable Convertible Preferred Stock authorized; 1,340 and
    1,340&nbsp;shares issued and outstanding as Series&nbsp;B
    Redeemable Convertible Preferred Stock (above), respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common Stock; $.01&nbsp;par value;
    200,000,000&nbsp;shares authorized; 42,701,767 and
    43,574,111&nbsp;shares issued, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">412,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">415,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(127,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(136,413</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,411</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,093</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less common stock held in treasury, at cost;
    608,275 and 608,275&nbsp;shares, respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL STOCKHOLDERS&#146; EQUITY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">281,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL LIABILITIES AND STOCKHOLDERS&#146; EQUITY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">445,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying Notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-53
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF
OPERATIONS</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">For the Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands, except</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">share and per share data)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net revenues:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total net revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenues:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of goods sold
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of sponsorship and other revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total cost of revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,469</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling and marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,522</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring charge
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,194</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(746</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,233</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income tax (benefit) expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividends and accretion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(841</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted loss per share of common stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic loss attributable to common stockholders
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted loss attributable to common stockholders
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average basic common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,149,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,457,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average diluted common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,149,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,457,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying Notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-54
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS</FONT></B>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">For the Three</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">thousands)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other comprehensive loss net of tax:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net unrealized loss on available-for-sale
    securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(139</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Comprehensive loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(527</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,253</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying Notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-55
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">For the Three Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Ended April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">thousands)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH FLOWS FROM OPERATING ACTIVITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net loss to net cash
    used in operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(322</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of debt issuance costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">128</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Compensation charge for restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">351</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in operating assets and
    liabilities&nbsp;&#151; net of effect of business acquisitions:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,426</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,650</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid catalog costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,926</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,250</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable, accrued expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,652</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,480</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,452</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,661</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH FLOWS FROM INVESTING ACTIVITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of marketable securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,130</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,054</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the sales and maturities of
    marketable securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,748</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(935</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,595</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sale and disposal of capital assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid in connection with acquisitions of
    businesses, net of cash acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(208</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of mailing lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by (used in) investing
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,493</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,007</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH FLOWS FROM FINANCING ACTIVITIES:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercise of options and warrants and common stock
    purchases under the employee stock purchase plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repurchase of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,984</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net borrowings under line of credit agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of bank-loan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments of capitalized lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(78</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(87</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash (used in) provided by financing
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,845</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NET INCREASE (DECREASE)&nbsp;IN CASH AND CASH
    EQUIVALENTS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,676</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH AND CASH EQUIVALENTS, beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH AND CASH EQUIVALENTS, end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid during the period for interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Supplemental disclosure of non-cash investing and
    financing activity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Issuance of common stock and warrants in
    connection with acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividends and accretion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying Notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-56
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS&#146; EQUITY</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="25%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="35"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="35" align="center" nowrap><B><FONT size="1">For the Three Months Ended April&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="35" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Treasury Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid-In</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deferred</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Loss</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="35"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="35" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="35" align="center" nowrap><B><FONT size="1">(Amounts in thousands, except share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42,701,767</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">427</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">412,594</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(127,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,411</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(608,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">281,295</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock for acquisitions of
    businesses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">560,344</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,373</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,379</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock pursuant to the exercise
    of options
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(9,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(9,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">308,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">351</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">351</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Adjustment of stock options for terminated
    employees
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Accretion of discount and dividends on
    Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(394</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(394</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized loss on available-for-sale marketable
    securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, April&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">43,574,111</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">436</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">415,621</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(136,413</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,093</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(608,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">275,396</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-57
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS&#146; EQUITY</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="32%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><B><FONT size="1">For the Three Months Ended April&nbsp;30, 2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Additional</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Treasury Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid-In</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Income (Loss)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><B><FONT size="1">(Amounts in thousands, except share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">40,082,024</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">401</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">396,963</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(51,955</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">164</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(131</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">345,442</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock for acquisitions of
    businesses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,545,947</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,302</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,317</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Repurchase of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(600,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,984</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,984</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cancellation of accrued issuance costs in
    connection with public stock offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">102</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">102</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of common stock pursuant to the exercise
    of options and common stock purchases under the employee stock
    purchase plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">52,470</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">217</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Accretion of discount and dividends on
    Series&nbsp;B Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(453</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(453</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized loss on available-for-sale marketable
    securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(139</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(139</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, April&nbsp;30, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41,680,441</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">417</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">405,130</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(52,343</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(608,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">350,114</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying Notes are an integral part of
these financial statements.
</FONT>

<P align="center"><FONT size="2">F-58
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Business and Financial Statement
    Presentation</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy, Inc. (&#147;Alloy&#148; or the
&#147;Company&#148;) is a media, marketing services, direct
marketing and retail company targeting Generation Y, the
approximately 60&nbsp;million boys and girls in the United
States between the ages of 10 and 24. Alloy&#146;s business
integrates direct mail catalogs, retail stores, print media,
display media boards, websites, on-campus marketing programs and
promotional events, and features a portfolio of brands that are
well known among Generation Y consumers and advertisers. Alloy
reaches a significant portion of Generation Y consumers through
its various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, Alloy is
able to offer advertisers targeted access to the youth market.
Alloy sells third-party branded and private label products in
key Generation Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, Alloy&#146;s assets have enabled it to build a
comprehensive database that includes information about
approximately 27&nbsp;million Generation Y consumers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy generates revenue from three principal
sources&nbsp;&#151; direct marketing, retail stores, and
sponsorship and other activities. From its catalogs and
websites, Alloy sells branded products in key Generation Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Alloy&#146;s
retail stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. Alloy
generates sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach Generation
Y. Advertisers can reach Generation Y through integrated
marketing programs that include its catalogs, books, websites,
and display media boards, as well as through promotional events,
product sampling, college and high school newspaper advertising,
customer acquisition programs and other marketing services that
Alloy provides.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The accompanying unaudited interim consolidated
financial statements have been prepared by Alloy. In the opinion
of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations, comprehensive losses and cash
flows at April&nbsp;30, 2004 and for all periods presented have
been made. The results of operations for the periods ended
April&nbsp;30, 2003 and April&nbsp;30, 2004 are not necessarily
indicative of the operating results for a full fiscal year.
Certain information and footnote disclosures prepared in
accordance with generally accepted accounting principles
(&#147;GAAP&#148;) and normally included in the financial
statements have been condensed or omitted. Certain balances in
the prior year have been reclassified to conform to the
presentation adopted in the current year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">It is suggested that these financial statements
and accompanying notes (the &#147;Notes&#148;) be read in
conjunction with the consolidated financial statements and
accompanying notes related to Alloy&#146;s fiscal year ended
January&nbsp;31, 2004 (&#147;fiscal 2003&#148;) included in this
prospectus.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Stock-Based Employee Compensation
    Cost</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company accounts for its stock option plans
in accordance with the provisions of Accounting Principles Board
Opinion No.&nbsp;25 (&#147;APB No.&nbsp;25&#148;),
&#147;Accounting for Stock Issued to Employees,&#148; and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the then current market
price of the underlying stock exceeded the exercise price. The
Company discloses the pro forma effect on net loss and loss per
share attributable to common stockholders as required by
SFAS&nbsp;No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation,&#148; recognizing as expense over the vesting
period the fair value of all stock-based awards on the date of
grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Shares issued under the employee stock purchase
plan are considered noncompensatory for the determination of
compensation expense under APB No.&nbsp;25, but the fair value
of the benefit related to acquiring such shares at a discount is
included as compensation expense in the pro forma disclosures
required by SFAS&nbsp;No.&nbsp;123.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table reflects the effect on net
loss attributable to common stockholders and loss per share
attributable to common stockholders if the Company had applied
the fair value recognition provisions of SFAS&nbsp;No.&nbsp;123
to stock-based employee compensation. These pro forma effects
may not be representative of
</FONT>

<P align="center"><FONT size="2">F-59
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">future amounts since the estimated fair value of
stock options on the date of grant is amortized to expense over
the vesting period and additional options may be granted in
future years.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">except per share data)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common
    stockholders&nbsp;&#151; as reported:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(841</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add: Total stock-based employee compensation
    costs included in reported net loss, net of taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">351</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Total stock-based
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">employee compensation costs determined under fair
    value based method for all awards, net of taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,035</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,518</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common
    stockholders&nbsp;&#151; pro forma:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,876</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,804</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic loss attributable to common stockholders
    per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted loss attributable to common stockholders
    per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SFAS&nbsp;No.&nbsp;148, &#147;Accounting for
Stock-Based Compensation&nbsp;&#151; Transition and Disclosure
an amendment of FASB Statement No.&nbsp;123,&#148; which was
issued in December 2002, provides alternative methods of
transition for an entity that changes to the fair value based
method of accounting for stock-based compensation and requires
more prominent disclosure of the pro forma impact on earnings
per share. The disclosure portion of the statement was adopted
in 2002. On April&nbsp;22, 2003, the FASB determined that fair
value of stock-based compensation should be recognized as a cost
in the financial statements. On March&nbsp;31, 2004, the FASB
issued an exposure draft that provides for a comment period,
which ends June&nbsp;30, 2004. The proposed statement would be
effective for awards that are granted, modified, or settled in
fiscal years beginning after December&nbsp;15, 2004. The Company
has not yet determined the impact of this statement on its
consolidated financial position, results of operations or cash
flows.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Restricted Cash</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Restricted cash represents the cash that backs
our line of credit. Restricted cash totaled approximately
$3.3&nbsp;million as of January&nbsp;31, 2004 and April&nbsp;30,
2004. Restricted cash primarily represents collateral for
standby letters of credit issued in connection with the
Company&#146;s merchandise sourcing activities. The restriction
will be removed after the letters of credit expire or are
cancelled.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Unbilled Accounts Receivable</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unbilled accounts receivable are a normal part of
the Company&#146;s sponsorship business as some receivables are
normally invoiced in the month following the completion of the
earnings process.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;31, 2004 and April&nbsp;30, 2004,
accounts receivable included approximately $4.3&nbsp;million and
$9.2&nbsp;million, respectively, of unbilled receivables. At
April&nbsp;30, 2003, accounts receivable included approximately
$5.9&nbsp;million of unbilled receivables.
</FONT>

<P align="center"><FONT size="2">F-60
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">5.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Net Loss Per Share</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the computation of
net loss per share. Alloy has applied the provisions of
SFAS&nbsp;No.&nbsp;128, &#147;Earnings Per Share,&#148; in the
calculations below. Amounts in thousands, except share and per
share data:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Numerator:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,243</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividend and accretion on preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss attributable to common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(841</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Denominator:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average basic common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,149,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,457,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average diluted common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,149,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,457,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic loss attributable to common stockholders
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted loss attributable to common stockholders
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.23</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The calculation of fully diluted loss per share
for the three months ended April&nbsp;30, 2003 and 2004 excludes
the securities listed below because to include them in the
calculation would be antidilutive:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options to purchase common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,907,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,927,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants to purchase common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,813,540</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,917,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conversion of Series&nbsp;A and Series&nbsp;B
    Convertible Preferred Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,544,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,357,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conversion of 5.375%&nbsp;Convertible Debentures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,274,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">308,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,265,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,784,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">6.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Goodwill and Intangible Assets</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2001, the FASB issued
SFAS&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets.&#148; Under SFAS&nbsp;No.&nbsp;142, goodwill and
intangible assets with indefinite lives that were acquired after
June&nbsp;30, 2001 are no longer amortized but instead evaluated
for impairment at least annually. With respect to goodwill and
intangibles with indefinite lives that were acquired prior to
July&nbsp;1, 2001, Alloy adopted the nonamortization provisions
of SFAS&nbsp;No.&nbsp;142 as of February&nbsp;1, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy completed the required impairment testing
of goodwill and other indefinite-lived intangible assets for
fiscal 2003 and recognized a goodwill impairment charge of
$56.7&nbsp;million in its direct marketing segment since the
carrying amount of the reporting unit&#146;s goodwill exceeded
the implied fair value of the reporting unit&#146;s goodwill.
The Company concluded that there was no impairment in its
sponsorship and other segment since the implied fair value of
the goodwill exceeded the carrying amount of the reporting
unit&#146;s goodwill. Also, during the fourth quarter of fiscal
2003, an impairment charge for trademarks of $1.9&nbsp;million
and $2.0&nbsp;million was recognized in the direct marketing
segment and the sponsorship and other segment, respectively. The
Company will perform its annual impairment testing for its
reporting units during the fourth quarter of fiscal 2004.
</FONT>

<P align="center"><FONT size="2">F-61
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The acquired intangible assets as of
January&nbsp;31, 2004 and April&nbsp;30, 2004 were as follows
(amounts in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">January&nbsp;31, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Unaudited)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortized intangible assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mailing Lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-competition Agreements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,929</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Websites
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,193</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Client Relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold Interests
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,513</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nonamortized intangible assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The weighted average amortization period for
acquired intangible assets subject to amortization is
approximately three years. The estimated remaining amortization
expense for the fiscal year ending January&nbsp;31, 2005
(&#147;fiscal 2004&#148;) is $4.7&nbsp;million, and for each of
the next four fiscal years through the fiscal year ending
January&nbsp;31, 2009 is $3.2&nbsp;million, $1.4&nbsp;million,
$721,000 and $558,000, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy is continuing the review and determination
of the fair value of certain assets acquired and liabilities
assumed for acquisitions completed during the last nine months
of fiscal 2003 and the first three months of fiscal 2004.
Accordingly, the allocations of the purchase price are subject
to revision based on the final determination of appraised and
other fair values and the resolution of pre-acquisition
contingencies.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in the carrying amount of goodwill
for the three months ended April&nbsp;30, 2004 are as follows
(amounts in thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross balance as of January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">301,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated goodwill amortization as of
    January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net balance as of January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill adjustments during the three months
    ended April&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net balance as of April&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">280,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The goodwill associated with the acquisitions
during the prior twelve months is subject to revision based on
the final determination of appraised and other fair values along
with the resolution of pre-acquisition contingencies. Goodwill
adjustments during the first three months of fiscal 2004
primarily relate to an approximate $5.6&nbsp;million increase in
goodwill for the acquisitions during the first quarter of fiscal
2004. Other goodwill adjustments during the first three months
of fiscal 2004 relate to changes to acquisition costs of
approximately $364,000.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">7.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Recently Issued Accounting
    Pronouncements</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2003, the SEC released Staff
Accounting Bulletin No.&nbsp;104 (&#147;SAB No.&nbsp;104&#148;),
&#147;Revenue Recognition&#148;, which supersedes SAB
No.&nbsp;101, &#147;Revenue Recognition in Financial
Statements.&#148; SAB No.&nbsp;104
</FONT>

<P align="center"><FONT size="2">F-62
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">clarifies existing guidance regarding revenues
for contracts which contain multiple deliverables to make it
consistent with Emerging Issues Task Force No.&nbsp;00-21
(&#147;EITF&nbsp;00-21&#148;), &#147;Accounting for Revenue
Arrangements with Multiple Deliverables.&#148; The adoption of
SAB No.&nbsp;104 did not have a material impact on the
Company&#146;s revenue recognition policies, nor its
consolidated results of operations or financial position.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January&nbsp;31, 2003 the FASB issued <I>FASB
Interpretation No.&nbsp;46</I>&nbsp;&#151; &#147;Consolidation
of Variable Interest Entities&#148; (&#147;FIN&nbsp;46&#148;).
FIN&nbsp;46 requires the consolidation of entities that cannot
finance their activities without the support of other parties
and that lack certain characteristics of a controlling interest,
such as the ability to make decisions about the entity&#146;s
activities via voting or similar rights. An entity that
consolidates a variable interest entity is the primary
beneficiary of the entity&#146;s activities. FIN&nbsp;46 applied
immediately to variable interest entities created after
January&nbsp;31, 2003, and required application in the first
period ending after December&nbsp;15, 2003 for entities in which
an enterprise holds a variable interest entity that it acquired
before February&nbsp;1, 2003. The adoption of FIN&nbsp;46 did
not have a material impact on the Company&#146;s consolidated
results of operations or financial position. In December of
2003, the FASB revised FIN&nbsp;46 (&#147;FIN&nbsp;46R&#148;),
which delayed the required implementation date for variable
interest entities until the end of the first reporting period
that ends after March&nbsp;15, 2004. The adoption of
FIN&nbsp;46R did not have a material impact on the
Company&#146;s consolidated results of operations or financial
position.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">8.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Segment Reporting</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Alloy has three reportable segments: direct
marketing, retail stores, and sponsorship and other. During
September 2003, Alloy changed the name of its catalog and online
commerce business from the merchandise segment to the direct
marketing segment and identified a third reportable
segment&nbsp;&#151; retail stores. Alloy&#146;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&#146;s segments were as follows (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="72%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Revenues:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Net Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="72%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating (Loss) Income:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,473</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,276</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,006</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,002</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Operating Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,033</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income (expense)&nbsp;and other income,
    net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(686</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(746</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,233</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-63
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Included in operating loss for the three months
ended April&nbsp;30, 2003 are expenses of $380,000 in the direct
marketing segment due to restructuring charges representing
future contractual lease payments, exit costs, severance and
personnel costs, and the write-off of related leasehold
improvements related to the closing of the Company&#146;s
Girlfriends LA (&#147;GFLA&#148;) facility. In conjunction with
the GFLA facility closure, the Company also wrote off
approximately $150,000 of inventory during the first quarter of
fiscal 2003. This charge is included in cost of goods sold as
part of the direct marketing segment for the three-months ended
April&nbsp;30, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating loss for the three months ended
April&nbsp;30, 2004 includes an approximate $126,000
restructuring charge in the sponsorship and other segment. The
restructuring charge is comprised of severance costs associated
with the relocation from California to New York of the
Company&#146;s Market Place Media (&#147;MPM&#148;) business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of goods sold for the three-months ended
April&nbsp;30, 2004 included costs related to sponsorship and
other revenues of $986,000. Costs of goods sold for the
three-months ended April&nbsp;30, 2003, had no costs related to
sponsorship and other revenues.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Ended April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and Amortization:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Depreciation and Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="73%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Three Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Ended April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Expenditures:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">711</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">299</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Capital Expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,516</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Corporate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">445,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-64
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying amount of goodwill by reportable
segment as of April&nbsp;30, 2004 and January&nbsp;31, 2004 was
as follows (amounts in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Direct marketing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retail stores
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sponsorship and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">215,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">280,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">9.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Restructuring Charges</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the fourth quarter of fiscal 2002, the
Company recognized a restructuring charge of $2.6&nbsp;million
in its direct marketing segment related to its decision to
outsource its CCS unit&#146;s fulfillment activity to New Roads
Inc, a third party service provider (&#147;New Roads&#148;). In
the first quarter of 2003, the Company recognized a charge of
approximately $380,000 in its direct marketing segment related
to its decision to outsource its GFLA fulfillment activities to
New Roads. In the third quarter of fiscal 2003, the Company
recognized a charge of approximately $350,000 in its direct
marketing segment related to its decision to exit the New Roads
facility and to transfer its fulfillment activities for its
Alloy and CCS units to its recently acquired distribution center
in Hanover, Pennsylvania.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of the dELiA*s acquisition, Alloy assumed
a $6.5&nbsp;million restructuring liability. Alloy was
contractually obligated to pay certain termination costs to
three executives of dELiA*s. Management has estimated
liabilities related to the net present value of these
termination costs to be approximately $2.7&nbsp;million. In
addition, management estimated $3.8&nbsp;million of store exit
and lease costs and severance related to the closing of up to 17
dELiA*s retail stores.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the first quarter of fiscal 2004, the
Company made the decision to relocate the operations of its MPM
business from Santa&nbsp;Barbara, California to the
Company&#146;s principal office in New York, New York and
terminated several MPM employees. As a result, and in accordance
with SFAS&nbsp;146 &#147;Accounting for Costs Associated with
Exit or Disposal Activities&#148; (&#147;Statement
No.&nbsp;146&#148;), the Company recognized a restructuring
charge in the sponsorship and other segment of approximately
$126,000 in the first quarter of fiscal 2004. The $126,000
restructuring charge is comprised of severance costs. The MPM
business is expected to relocate to the New York office by the
end of the second quarter of fiscal 2004. Additional charges
representing additional severance costs, future contractual
lease payments and the write-off of related leasehold
improvements will be recognized during the second quarter of
fiscal 2004 when the MPM business is physically relocated from
Santa&nbsp;Barbara to New York.
</FONT>

<P align="center"><FONT size="2">F-65
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables summarize the Company&#146;s
restructuring activities (in thousands):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance&nbsp;&#38;</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Contractual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Personnel</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Type of cost</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Impairments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Obligations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Costs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at January&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring Costs Fiscal 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">dELiA*s restructuring liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments and Write-offs Fiscal 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,519</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(82</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,632</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at January&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,043</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring Costs Fiscal 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments Fiscal 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(597</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(645</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at April&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,698</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of the Company&#146;s restructuring
liability by location and/or business, as of January&nbsp;31,
2004 and April&nbsp;30, 2004 is as follows (in thousands):
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CCS facility, San&nbsp;Luis Obispo, California
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">912</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">MPM facility, Santa&nbsp;Barbara, California
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">dELiA*s restructuring liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,698</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company anticipates that the remaining
restructuring accruals will be settled by January&nbsp;31, 2008.
As of April&nbsp;30, 2004, the restructuring accruals are
classified as a current liability and a long-term liability of
$4.0&nbsp;million and $1.7&nbsp;million, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">10.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Common Stock</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;29, 2003, Alloy adopted a stock
repurchase program authorizing the repurchase of up to
$10.0&nbsp;million of its common stock from time to time in the
open market at prevailing market prices or in privately
negotiated transactions. Alloy has repurchased
600,000&nbsp;shares for approximately $3.0&nbsp;million under
this plan through April&nbsp;30, 2004. All 600,000&nbsp;shares
were repurchased during the first quarter of fiscal 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">11.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Restricted Stock Plan</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003 and March 2004, the Company issued
300,000 and 8,000&nbsp;shares of Common Stock, respectively, as
restricted stock under the Company&#146;s Amended and Restated
1997 Employee, Director and Consultant Stock Option and Stock
Incentive Plan (the &#147;1997 Plan&#148;). The shares issued
pursuant to the 1997 Plan are subject to restrictions on
transfer and certain other conditions. During the restriction
period, plan participants are entitled to vote and receive
dividends on such shares. Upon issuance of the
308,000&nbsp;shares pursuant to the 1997 Plan, deferred
compensation expenses equivalent to the market value of the
shares on the respective dates of grant were charged to
stockholders&#146; equity and are being amortized over the
approximate twenty-month to forty month vesting periods. The
compensation expense amortized with respect to the restricted
shares during the three months ended April&nbsp;30, 2003 and
April&nbsp;30, 2004 was $0 and $351,000, respectively.
</FONT>

<P align="center"><FONT size="2">F-66
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">12.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Recent Acquisitions</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Insite Advertising, Inc.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;26, 2004, Alloy acquired all of the
issued and outstanding stock of Insite Advertising, Inc.
(&#147;Insite&#148;). InSite is a national indoor media company
targeting consumers between the ages of 18-34. OnSite
Promotions, a division of InSite, is an event-marketing and
promotions company that creates customized programs for its
clients. The InSite network of out-of-home media assets and the
OnSite division further extend Alloy&#146;s reach to the 18-34
demographic through its promotional marketing arm, AMP (Alloy
Marketing and Promotions) and its media and marketing division,
360 Youth. To complete the acquisition, Alloy paid approximately
$5.1&nbsp;million in cash and issued shares of common stock
valued at approximately $2.9&nbsp;million, plus additional
future consideration if certain financial performance targets
are met. As of April&nbsp;30, 2004, the total cash paid
including acquisition costs, net of cash acquired, approximated
$4.8&nbsp;million. The total cost of this acquisition, net of
cash acquired and including acquisition costs, is estimated to
be $7.7&nbsp;million. Alloy has recorded approximately
$5.4&nbsp;million of goodwill representing the excess of
purchase price over the fair value of the net assets acquired.
In addition, Alloy has preliminarily identified specific
intangible assets consisting of customer relationships valued at
$1.1&nbsp;million and non-competition agreements valued at
$800,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The operations of this acquisition have been
included in Alloy&#146;s financial statements since the date of
the acquisition. The assets acquired and liabilities assumed
were recorded at estimated fair values as determined by
Alloy&#146;s management based on available information and on
assumptions as to future operations. The allocations of the
purchase price are subject to revision based on the final
determination of appraised and other fair values and the
resolution of pre-acquisition contingencies.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">13.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Convertible Senior Debentures</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;23, 2003, Alloy issued and sold
$65.0&nbsp;million aggregate principal amount of 20-Year
Convertible Senior Debentures due August&nbsp;1, 2023 (the
&#147;Debentures&#148;) in the 144A private placement market.
Lehman Brothers, Inc., CIBC World Market Corp., J.P.&nbsp;Morgan
Securities Inc., and S.G. Cowen Securities Corporation were the
initial purchasers (the &#147;Initial Purchasers&#148;) of the
Debentures. The Debentures have an annual coupon rate of 5.375%,
payable in cash semi-annually. The Debentures are convertible
prior to maturity under certain circumstances, unless previously
redeemed, at the option of the holders into shares of
Alloy&#146;s common stock at a conversion price of approximately
$8.375&nbsp;per share, subject to certain adjustments. The
calculation of diluted loss per share for fiscal 2003 excluded
the conversion of these securities as to include them in the
calculation would be anti-dilutive. The Debentures are
Alloy&#146;s general unsecured obligations and will be equal in
right of payment to its existing and future senior unsecured
indebtedness; and are senior in right of payment to all of its
future subordinated debt. Alloy may not redeem the Debentures
until August&nbsp;1, 2008. On August&nbsp;20, 2003, Alloy issued
and sold an additional $4.3&nbsp;million aggregate principal
amount of the Debentures to the Initial Purchasers pursuant to
the exercise of an over-allotment option granted to the Initial
Purchasers in the original purchase agreement. Alloy used a
significant portion of the net proceeds from this offering for
the acquisition of dELiA*s and intends to use the remaining
portion for future acquisitions, working capital, capital
expenditures and general corporate purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On February&nbsp;17, 2004, Alloy approved the
repurchase of up to $5.0&nbsp;million aggregate principal amount
of the Debentures. As of June&nbsp;8, 2004, none of the
Debentures have been repurchased.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">14.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Mortgage Note Payable</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dELiA*s was subject to certain covenants under a
mortgage loan agreement relating to dELiA*s&#146; fiscal 1999
purchase of a distribution facility in Hanover, Pennsylvania,
including a covenant to maintain a fixed charge coverage ratio
at the time Alloy acquired dELiA*s. As a result of its financial
performance, dELiA*s was in default of the fixed charge coverage
ratio. The default has been waived for the duration of the loan.
On April&nbsp;19,
</FONT>

<P align="center"><FONT size="2">F-67
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">
<FONT size="2">2004, dELiA*s entered into a Mortgage
Note&nbsp;Modification Agreement extending the term for five
years with a fifteen-year amortization schedule. The modified
loan bears interest at LIBOR plus 225&nbsp;basis points. Alloy
guaranteed the modified loan and is subject to a quarterly
financial covenant to maintain a funds flow coverage ratio with
which Alloy is not currently in compliance. As a result of this
default, the $2.9&nbsp;million outstanding principal balance as
of April&nbsp;30, 2004 relating to dELiA*s mortgage loan
agreement is classified as a current liability on the
accompanying consolidated balance sheets. The mortgage loan is
secured by the building and related property.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">15.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Credit Facility</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">dELiA*s has a credit agreement with Wells Fargo
Retail Finance LLC (the &#147;Wells Fargo Credit
Agreement&#148;). The Wells Fargo Credit Agreement consists of a
revolving line of credit that permits dELiA*s to borrow up to
$20&nbsp;million. Until October&nbsp;31, 2004, dELiA*s retains
the right to request an increase of the limit to
$25&nbsp;million which the lender has the right to approve at
its sole discretion. The credit line is secured by dELiA*s&#146;
assets and borrowing availability fluctuates depending on
dELiA*s&#146; levels of inventory and certain receivables. The
Wells Fargo Credit Agreement contains certain covenants and
default provisions, including a limitation on dELiA*s&#146;
capital expenditures. At dELiA*s&#146; option, borrowings under
this facility bear interest at Wells Fargo Bank&#146;s prime
rate plus 25&nbsp;basis points or at LIBOR plus 250&nbsp;basis
points, but at no time will the rate be less than 4.25%. A fee
of 0.375%&nbsp;per year is assessed monthly on the unused
portion of the line of credit as defined in the agreement. The
facility matures in April 2006. The credit facility is
considered a current liability because the lender has access to
dELiA*s lockbox facility and the agreement contains a subjective
acceleration clause. In addition, the Wells Fargo Credit
Agreement contains a change of control event, which was
triggered when Alloy purchased dELiA*s and allowed the lender to
call the loan at any time. The lender has agreed to waive any
default caused in connection with Alloy&#146;s acquisition of
dELiA*s. As of April&nbsp;30, 2004, there was a
$3.1&nbsp;million credit facility balance, there were no
outstanding documentary letters of credit, the standby letters
of credit were $2.9&nbsp;million, and unused available credit
was $945,000.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">16.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Subsequent Events</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Change of Independent Registered Public
    Accounting Firm</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On May&nbsp;28, 2004, the Audit Committee of our
Board of Directors (the &#147;Board&#148;) dismissed KPMG LLP
(&#147;KPMG&#148;) as our independent auditors effective
immediately. The Audit Committee made the decision to engage BDO
Seidman, LLP (&#147;BDO&#148;) as our independent auditors for
the fiscal year ending January&nbsp;31, 2005, effective as of
May&nbsp;28, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During our two most recent fiscal years ended
January&nbsp;31, 2003 and January&nbsp;31, 2004, and through
May&nbsp;28, 2004, there were no &#147;reportable events&#148;
as listed in Item&nbsp;304(a)(1)(v)(A)-(D) of
Regulation&nbsp;S-K adopted by the Securities and Exchange
Commission (the &#147;Commission&#148;), except that, in
performing its audit of our Consolidated Financial Statements
for our fiscal year ended January&nbsp;31, 2004, KPMG noted two
matters involving our internal controls that it considered to be
reportable conditions and/or material weaknesses under the
standards established by the American Institute of Certified
Public Accountants. A reportable condition, which may or may not
be determined to be a material weakness, involves matters
relating to significant deficiencies in the design or operation
of internal controls that, in KPMG&#146;s judgment, could
adversely affect our ability to record, process, summarize and
report financial data consistent with the assertions of
management on the financial statements. The first reportable
condition identified by KPMG related to the absence of
appropriate reviews and approvals of transactions, accounting
entries and systems output at our dELiA*s subsidiary. According
to KPMG, numerous adjusting entries came about as a result of
its audit procedures at dELiA*s that indicated a lack of timely
and appropriate management review during the closing process.
This reportable condition was not considered to be a material
weakness.
</FONT>

<P align="center"><FONT size="2">F-68
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center">
<B><FONT size="2">ALLOY, INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; &nbsp;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The second identified reportable condition was
considered a material weakness and concerned the ability of
accounting personnel to properly apply all relevant accounting
pronouncements related to goodwill, intangible assets and other
long-lived assets. Specifically, KPMG indicated that when we
applied the provisions of FASB No.&nbsp;142 relating to the
annual assessment of goodwill and other indefinite-lived
intangible assets carrying value, we incorrectly applied the
provisions of SFAS&nbsp;No.&nbsp;142 needed to calculate the
impairment amounts, and failed to test separately the carrying
values of our other indefinite-lived intangible assets. KPMG
also indicated that we incorrectly applied the provisions of
SFAS&nbsp;No.&nbsp;144, &#147;Accounting for the Impairment or
Disposal of Long-Lived Assets,&#148; in calculating impairment
amounts of other long-lived assets. In addition, they noted that
we had not formally documented triggering events for impairment
testing under either standard. Consequently, we did not properly
identify the adjustments that arose due to the weakness in our
internal control process, and KPMG indicated that we need to
implement modifications and upgrades to our financial reporting
process to ensure that this situation does not occur in the
future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The reportable condition and material weakness
have been discussed in detail by management, our Audit Committee
and KPMG, and we have authorized KPMG to respond fully to the
inquiries of BDO, our new independent auditors, concerning the
subject matter of the foregoing reportable conditions.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Nasdaq Delisting Hearing</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of the late filing of our Annual
Report on Form&nbsp;10-K for our fiscal year ended
January&nbsp;31, 2004 by the extended due date of April&nbsp;30,
2004, we received a letter from the Nasdaq staff indicating that
we were not in compliance with the filing requirements for
continued listing on The Nasdaq National Market as set forth in
Nasdaq Marketplace Rule&nbsp;4310(c)(14). As stated in the
Nasdaq letter, our common stock was subject to delisting from
The Nasdaq National Market because of such late filing. We
requested a hearing before the Nasdaq Listing Qualifications
Panel (the &#147;Panel&#148;) to review the staff determination,
and the delisting proceedings were stayed automatically pending
the results of that hearing. That hearing was held on
May&nbsp;27, 2004. Also on May&nbsp;27, 2004, and prior to the
hearing, we filed our Annual Report on Form&nbsp;10-K for our
fiscal year ended January&nbsp;31, 2004, bringing us into
compliance with the Nasdaq standards for continued listing on
The Nasdaq National Market. On June&nbsp;7, 2004, we received a
letter from Nasdaq containing the decision of the Panel. The
decision noted that, although we had filed our delinquent
Form&nbsp;10-K and evidenced compliance with all other
requirements for continued listing on The Nasdaq National
Market, because of our recent change of auditors the Panel
determined to monitor our filing of this Quarterly Report on
Form&nbsp;10-Q so as to ensure our continued compliance with the
Nasdaq&#146;s filing requirement in the near term. Thus, the
Panel determined to continue the listing of our securities on
the The Nasdaq National Market pursuant to a requirement that we
file our Form&nbsp;10-Q for the first quarter of fiscal 2004 on
or before June&nbsp;14, 2004.
</FONT>

<P align="center"><FONT size="2">F-69
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center">
<B><FONT size="2">PART&nbsp;II</FONT></B>

<P align="center">
<B><FONT size="2">INFORMATION NOT REQUIRED IN
PROSPECTUS</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;13.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Other Expenses of Issuance and
    Distribution.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the various
expenses, all of which will be borne by the Registrant, in
connection with the sale and distribution of the securities
being registered, other than the underwriting discounts. All
amounts shown are estimates except for the Securities and
Exchange Commission registration fee.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SEC registration fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,507.52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trustee fees and Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,000.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Printing and mailing expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,000.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Miscellaneous
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,000.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">161,507.52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;14.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Indemnification of Directors and
    Officers</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our restated certificate of incorporation (the
&#147;Charter&#148;) provides that we shall indemnify and
advance expenses to the fullest extent permitted by
Section&nbsp;145 of the Delaware General Corporation Law
(&#147;DGCL&#148;), as amended from time to time, to each person
who is or was one of our directors or officers and the heirs,
executors and administrators of such a person. Any expenses,
including attorneys&#146; fees, incurred by a person who is or
was one of our directors or officers, and the heirs, executors
and administrators of such a person in connection with defending
any such proceeding in advance of its final disposition shall be
paid by us; provided, however, that if the DGCL requires an
advancement of expenses incurred by an indemnitee in his
capacity as a director or officer, and not in any other capacity
in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit
plan, shall be made only upon delivery to us of an undertaking
by or on behalf of such indemnitee, to repay all amounts so
advanced, if it shall ultimately be determined that such
indemnitee is not entitled to be indemnified for such expenses.
Notwithstanding the aforementioned indemnification provisions,
we may, at the discretion of our chief executive officer, enter
into indemnification agreements with directors or officers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;145 of the DGCL provides that a
corporation has the power to indemnify any director or officer,
or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in
the right of the corporation, by reason of the fact that such
director or officer or former director or officer is or was a
director, officer, employee or agent of the corporation, against
expenses, including attorneys&#146; fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by
them in connection with such action, suit or proceeding, if such
person shall have acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, provided that such person had no reasonable cause to
believe his or her conduct was unlawful, except that, if such
action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have
been liable to the corporation unless and to the extent that the
Court of Chancery of the State of Delaware, or any court in
which such suit or action was brought, shall determine upon
application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity
for such expenses as such court shall deem proper.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;15.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Recent Sales of Unregistered
    Securities.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;2, 2001, we completed the
acquisition of all of the outstanding capital stock of CASS
Communications, Inc., an Illinois corporation with a principal
place of business in Evanston, Illinois (&#147;CASS&#148;), in
exchange for 1,720,392 unregistered shares of our common stock
issued to the former sole stockholder of
</FONT>

<P align="center"><FONT size="2">II-1
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">CASS, $9,700,000 in cash, a contingent note for
cash and the promise to issue additional shares of common stock
if certain performance targets were met during the 12-month
period following the acquisition. The contingent note expired
without any payments being made thereunder and no additional
shares of common stock were issued to the former stockholder of
CASS because the earnings target for the 12-month period
following the acquisition were not met. Of the shares issued in
this transaction, 258,059&nbsp;shares were placed in escrow
pursuant to an escrow agreement, all of which shares were
released from escrow in August 2002.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On September&nbsp;28, 2001, Alloy completed the
acquisition of all of the outstanding capital stock of
Dan&#146;s Competition, Inc. (&#147;Dan&#146;s&#148;), an
Indiana corporation with a principal place of business in Mt.
Vernon, Indiana in exchange for 2,081,037 unregistered shares of
our common stock; $11,000,000 in cash; and two contingent
promissory notes, which notes expired in November 2002 without
any payments being made thereunder. We issued an additional
37,037&nbsp;shares of common stock as a working capital
adjustment to the purchase price. Of the shares issued in this
transaction, 370,370&nbsp;shares were placed in escrow pursuant
to an escrow agreement, all of which shares were released from
escrow in October 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;1, 2001, Alloy completed the
acquisition of all of the stock of Target Marketing&nbsp;&#38;
Promotions, Inc. (&#147;Target&#148;), a Massachusetts
corporation that provides market research and promotional
activities and services targeted at the Generation Y audience.
To pay for the acquisition, we issued 204,967 unregistered
shares of our common stock. In addition, on September&nbsp;13,
2002, December&nbsp;19, 2002 and November&nbsp;10, 2003, as
additional performance based consideration, we issued an
aggregate of 68,401, 484,975 and 619,101&nbsp;shares of common
stock, respectively, based upon Target&#146;s earnings before
interest and taxes for the four fiscal quarterly periods and two
annual periods beginning November&nbsp;1, 2001. Of the shares
issued in this transaction, 30,745&nbsp;shares were placed in
escrow pursuant to an escrow agreement, all of which shares have
been released from escrow.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;1, 2001, Alloy entered into
definitive purchase agreements to sell 2.575&nbsp;million shares
of newly issued common stock in a private placement to both new
institutional investors and existing shareholders for an
aggregate purchase price of $32,187,500.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;26, 2001, Alloy acquired
substantially all of the assets of the 360 Youth business of
MarketSource Corporation, a Delaware corporation
(&#147;MarketSource&#148;), in exchange for 1,839,520
unregistered shares of our common stock; $13,375,000 in cash;
and two warrant to purchase up to 110,000&nbsp;shares of Alloy
common stock, each at a price of $13.78&nbsp;per share. In
accordance with its terms terms, the first warrant may be
exercised with respect to 50,000&nbsp;shares of Common Stock on
or after November&nbsp;26, 2002 and prior to November&nbsp;26,
2007, and with respect to the remaining 50,000&nbsp;shares of
Common Stock, on or after November&nbsp;26, 2003 and prior to
November&nbsp;26, 2008. The second warrant for
10,000&nbsp;shares is currently exercisable and expires on
November&nbsp;25, 2007. We also agreed to issue up to an
additional 1,545,197&nbsp;shares of our common stock to the
former owner of 360 Youth if 360 Youth, as our new subsidiary,
met certain earnings targets over the 12-month period following
the closing of the acquisition. All of such
1,545,197&nbsp;shares were issued on April&nbsp;10, 2003. Of the
shares issued in this transaction, 283,286 were placed in escrow
as security for the indemnification of obligations of the former
owner of the 360 Youth business to us under the Purchase
Agreement between us and MarketSource, which escrowed shares
were released in November 2002 after the resolution of all
acquisition-related contingencies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;28, 2002, we issued and sold to
Fletcher International, Ltd., a private investment entity,
1,367,366&nbsp;shares of our common stock, at a purchase price
of $21.94&nbsp;per share, for an aggregate purchase price of
$30,000,000, and issued a warrant to purchase up to
888,788&nbsp;shares of our common stock, in each case subject to
adjustment under specified circumstances. As originally issued,
the warrant was exercisable in whole or in part at any time on
or prior to January&nbsp;28, 2012 at an exercise price of
$21.94&nbsp;per share, subject to adjustment. In [July], 2003,
the warrant was adjusted to become exercisable for up to
1,019,291&nbsp;shares of our common stock at an exercise price
of $19.13. Each of the purchase price for our common stock and
the exercise price under the warrant was equal to approximately
111% of the closing price of our common stock on
January&nbsp;25, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;20, 2002, we completed a merger to
acquire GFLA, Inc. (&#147;GFLA&#148;), a California corporation,
with a principal place of business in Valencia, California. In
connection with the merger, we issued 20,000 unregistered shares
of our common stock valued at $14.11&nbsp;per share, for an
aggregate value of $282,200, and
</FONT>

<P align="center"><FONT size="2">II-2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">
<FONT size="2">warrants, valued at $690,925 to purchase up to
100,000&nbsp;shares of unregistered common stock issued to the
former shareholders of GFLA. In valuing the warrants, we assume
dividend yield of 0%, volatility of 75%, risk-free interest rate
of 4.7%, and an expected life of one year. Each warrant entitles
its holder to purchase one share of common stock until
May&nbsp;18, 2003 with respect to 50% of the warrants, and until
May&nbsp;18, 2004 with respect to the remaining 50% of the
warrants, at an exercise price of $13.65&nbsp;per share. GFLA is
a retailer and manufacturer of clothing and accessories
targeting the girls segment of the Generation Y market.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On June&nbsp;10, 2002 and August&nbsp;19, 2002,
as performance-based partial consideration for our prior
acquisitions of all of the issued and outstanding capital stock
of Triple Dot Communications, Inc. (&#147;Triple Dot&#148;), a
Massachusetts corporation, and all of the membership interests
of Y-Access LLC (&#147;Y-Access&#148;), a Massachusetts limited
liability company, we issued an aggregate of 93,570&nbsp;shares
and 7,798&nbsp;shares, respectively, of unregistered common
stock to the former two shareholders of Triple Dot and the
former four securityholders of Y-Access.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On October&nbsp;23, 2002, as performance-based
partial consideration for our prior acquisition of all of the
Strength Magazine assets of Rapid Service Company (&#147;Rapid
Service&#148;), an Ohio corporation, we issued an aggregate of
27,248&nbsp;shares of unregistered common stock to Rapid Service.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about November&nbsp;1, 2002, as partial
consideration for our acquisition of substantially all of the
assets of Career Recruitment Media, Inc., an Illinois
corporation (CRM&#148;), we issued to the sole shareholder of
CRM, a warrant to purchase up to 10,000&nbsp;shares of our
common stock, subject to adjustment under specified
circumstances. The warrant is exercisable, in whole or in part,
at any time on or before November&nbsp;1, 2004 at an exercise
price of $9.62&nbsp;per share, subject to adjustment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;24, 2003 we completed a private
offering of $65.0&nbsp;million aggregate principal amount of our
5.375%&nbsp;Convertible Debentures due August&nbsp;1, 2023, the
(&#147;Debentures&#148;) for aggregate net proceeds of
approximately $62.4&nbsp;million. The Debentures have an annual
coupon rate of 5.375%, payable in cash semi-annually. Lehman
Brothers Inc., CIBC World Market Corp., J.P.&nbsp;Morgan
Securities Inc., and S.G. Cowen Securities Corporation (the
&#147;Initial Purchasers&#148;) were the initial purchasers of
the Debentures. The Debentures are convertible at any time prior
to maturity, unless previously redeemed, at the option of the
holders into shares of Alloy common stock at a conversion price
of approximately $8.375&nbsp;per share, subject to certain
adjustments and conditions. The Debentures are our general
unsecured obligations and will be equal in right of payment to
our existing and future senior unsecured indebtedness; and are
senior in right of payment to all of our future subordinated
debt. We may not redeem the Debentures until August&nbsp;1,
2008. The holders of the Debentures may put the Debentures back
to us at par plus accrued but unpaid interest on each of
August&nbsp;1, 2008, 2013 and 2018, subject to certain
conditions. On August&nbsp;20, 2003, we issued and sold an
additional $4.3&nbsp;million aggregate principal amount of our
Debentures to the Initial Purchasers, pursuant to the exercise
of an over-allotment option granted to the Initial Purchasers in
the purchase agreement relating to the Debentures.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On or about March&nbsp;26, 2004, as partial
consideration for our acquisition of all of the issued and
outstanding stock of InSite Advertising, Inc., a New York
corporation (&#147;InSite&#148;), we issued to the former
shareholders of InSite, an aggregate of 560,344&nbsp;shares of
our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The securities issued in the foregoing
transaction were offered and sold in reliance upon an exemption
from the registration requirements of the Securities Act of
1933, as amended (the &#147;Securities Act&#148;), provided in
Section&nbsp;4(2) of the Securities Act, and the regulations
promulgated thereunder, relating to sales by an issuer not
involving any public offering. No underwriters were involved in
the foregoing sales of securities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;16.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Exhibits and Financial Statement
    Schedules.</FONT></I></B></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(a)<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Exhibits:</FONT></I></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Acquisition Agreement by and among Alloy, Inc.,
    Dodger Acquisition Corp. and dELiA*s Corp., dated as of
    July&nbsp;30, 2003 (incorporated by Reference to Alloy&#146;s
    Current Report on Form 8-K filed July&nbsp;31, 2003).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-3
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Restated Certificate of Incorporation of Alloy
    Online, Inc. (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Amendment of Certificate of
    Incorporation of Alloy Online, Inc. (incorporated by reference
    to Alloy&#146;s Current Report on Form 8-K filed August&nbsp;13,
    2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Amendment of Restated Certificate
    of Incorporation of Alloy Online, Inc. (incorporated by
    reference to Alloy&#146;s Current Report on Form 8-K filed
    March&nbsp;13, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Designations, Preferences and
    Rights of the Series&nbsp;B Convertible Preferred Stock of Alloy
    Online, Inc. (incorporated by reference to Alloy&#146;s Current
    Report on Form 8-K filed June&nbsp;21, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Designations of Series&nbsp;C
    Junior Participating Preferred Stock of Alloy, Inc.
    (incorporated by reference to Alloy&#146;s Current Report on
    Form 8-K filed April&nbsp;14, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Restated Bylaws (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-1 filed
    March&nbsp;10, 1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Common Stock Certificate (incorporated by
    reference to Alloy&#146;s Registration Statement on
    Form&nbsp;S-1 filed March&nbsp;10, 1999 (Registration
    Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    November&nbsp;26, 2001, issued by Alloy, Inc. to MarketSource
    Corporation (incorporated by reference to Alloy&#146;s Current
    Report on Form 8-K filed December&nbsp;11, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    January&nbsp;28, 2002, issued by Alloy, Inc. to Fletcher
    International Ltd. (incorporated by reference to Alloy&#146;s
    Current Report on Form 8-K/ A filed February&nbsp;1, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Warrant to Purchase Common Stock, dated
    as of June&nbsp;19, 2001, issued by Alloy Online, Inc. to each
    of the purchasers of Alloy&#146;s Series&nbsp;B Preferred Stock
    (incorporated by reference to Alloy&#146;s Current Report on
    Form 8-K filed June&nbsp;21, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    March&nbsp;18, 2002, issued by Alloy, Inc. to Craig T. Johnson
    (incorporated by reference to Alloy&#146;s 2002 Annual Report on
    form 10-K filed May&nbsp;1, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrants to Purchase Common Stock, dated as of
    March&nbsp;18, 2002, issued by Alloy, Inc. to (i) Debra Lynn
    Millman, (ii) Kim Suzanne Millman, and (iii) Ronald J. Bujarski
    (substantially identical to Warrant referenced as
    Exhibit&nbsp;4.5 in all material respects, and not filed with
    Alloy&#146;s 2002 Annual Report on Form&nbsp;10-K, filed
    May&nbsp;1, 2003, pursuant to Instruction&nbsp;2 of
    Item&nbsp;601 of Regulation&nbsp;S-K).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    November&nbsp;1, 2002, issued by Alloy, Inc. to Alan M. Weisman
    (incorporated by reference to Alloy&#146;s 2002 Annual Report on
    form 10-K filed May&nbsp;1, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of 5.375% Global Convertible Senior
    Debenture due 2023 in the aggregate principal amount of
    $69,300,000 (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-3 filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indenture between Alloy, Inc. and Deutsche Bank
    Trust Company Americas, dated as of July&nbsp;23, 2003
    (incorporated by reference to Alloy&#146;s Registration
    Statement on Form&nbsp;S-3 filed October&nbsp;17, 2003
    (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the debentures being registered (incorporated by
    referenced to Alloy&#146;s Registration Statement on
    Form&nbsp;S-3 filed October&nbsp;17, 2003 (Registration
    Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the shares of common stock being registered.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alloy, Inc. Amended and Restated 1997 Employee,
    Director and Consultant Stock Option and Stock Incentive Plan
    (incorporated by reference to Alloy&#146;s 2002 Annual Report on
    form 10-K filed May&nbsp;1, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Alloy, Inc. Amended and
    Restated 1997 Employee, Director and Consultant Stock Option and
    Stock Incentive Plan (incorporated by reference to Alloy&#146;s
    Proxy Statement on Schedule 14A filed on June&nbsp;2, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="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&#146;s
    Registration Statement on Form&nbsp;S-8 filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Alloy, Inc. 2002 Incentive
    and Non-Qualified Stock Option Plan (incorporated by reference
    to Alloy&#146;s 2002 Annual Report on Form 10-K filed
    May&nbsp;1, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement dated February&nbsp;1, 2004
    between Matthew C. Diamond and Alloy Inc. (incorporated by
    reference to Alloy&#146;s Annual Report on Form 10-K, filed
    May&nbsp;27, 2004)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement dated February&nbsp;1, 2004
    between James K. Johnson,&nbsp;Jr. and Alloy, Inc. (incorporated
    by reference to Alloy&#146;s Annual Report on Form 10-K, filed
    May&nbsp;27, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement dated April&nbsp;19, 1999
    between Samuel A. Gradess and Alloy Online, Inc. (incorporated
    by reference to Alloy&#146;s Registration Statement on
    Form&nbsp;S-1 filed March&nbsp;10, 1999 (Registration
    Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated November&nbsp;24, 1998 between Matthew C. Diamond and
    Alloy Online, Inc. (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated November&nbsp;24, 1998 between James K. Johnson,&nbsp;Jr.
    and Alloy Online, Inc. (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-1 filed
    March&nbsp;10, 1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated November&nbsp;24, 1998 between Samuel A. Gradess and Alloy
    Online, Inc. (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Offer Letter dated May&nbsp;24, 2000
    between Robert Bell and Alloy Online, Inc. (incorporated by
    reference to Alloy&#146;s 2000 Annual Report on Form 10-K filed
    May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated March&nbsp;24, 2000 between Robert Bell and Alloy Online,
    Inc. (incorporated by reference to Alloy&#146;s 2000 Annual
    Report on Form 10-K filed May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Incentive Stock Option Agreement dated as of
    July&nbsp;19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy&#146;s 2000 Annual Report on
    Form 10-K filed May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Qualified Stock Option Agreement dated as of
    July&nbsp;19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy&#146;s 2000 Annual Report on
    Form 10-K filed May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Flexible Standardized 401(k) Profit Sharing Plan
    Adoption Agreement (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">1999 Employee Stock Purchase Plan (incorporated
    by reference to Amendment No.&nbsp;2 to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1/A filed April&nbsp;22,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement, dated as of
    June&nbsp;19, 2001, by and among Alloy Online, Inc, BayStar
    Capital, L.P., BayStar International, Ltd., Lambros, L.P.,
    Crosslink Crossover Fund&nbsp;III, L.P., Offshore Crosslink
    Crossover Fund&nbsp;III Unit Trust, Bayview Partners, the Peter
    M. Graham Money Purchase Plan and Trust and Elyssa Kellerman
    (incorporated by reference to Alloy&#146;s Current Report on
    Form 8-K filed June&nbsp;20, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Standard Office Lease between Arden Realty
    Finance Partnership, L.P. and Cass Communications, Inc., dated
    as of September&nbsp;11, 1998 (incorporated by reference to
    Alloy&#146;s Quarterly Report on Form 10-Q filed
    September&nbsp;14, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Standard Office Lease, dated
    as of November&nbsp;1, 2001, by and between Arden Realty Finance
    Partnership, L.P. and Alloy, Inc. (incorporated by reference to
    Alloy&#146;s 2001 Annual Report on Form 10-K filed May&nbsp;1,
    2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement by and between Bike Land, LLC and
    Dan&#146;s Competition, Inc., dated September&nbsp;28, 2001
    (incorporated by reference to Alloy&#146;s Quarterly Report on
    Form 10-Q filed December&nbsp;17, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Modification to Lease, dated November&nbsp;2,
    1999, by and between Alloy, Inc. and Abner Properties Company,
    dated April&nbsp;16, 2002 (incorporated by reference to
    Alloy&#146;s Quarterly Report on Form 10-Q filed June&nbsp;14,
    2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Second Lease Modification Agreement between
    Alloy, Inc. and Abner Properties Company, c/o&nbsp;Williams Real
    Estate Co., Inc., dated as of January&nbsp;28, 2002
    (incorporated by reference to Alloy&#146;s Annual Report on Form
    10-K filed May&nbsp;1, 2002). Third lease modification dated
    August&nbsp;31, 2002.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Third Lease Modification and Extension Agreement,
    dated as of August&nbsp;31, 2002 between Abner Properties
    Company c/o&nbsp;Williams USA Realty Services, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy&#146;s Quarterly Report
    on Form 10-Q filed December&nbsp;16, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Assignment and Assumption of Lease between Alloy,
    Inc. and Goldfarb&nbsp;&#38; Abrandt dated as of
    February&nbsp;1, 2002 (incorporated by reference to Alloy&#146;s
    Annual Report on Form 10-K filed May&nbsp;1, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Services Agreement, dated as of
    February&nbsp;1, 2002, by and between NewRoads, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy&#146;s Quarterly Report
    on Form 10-Q filed June&nbsp;14, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated 1996 Stock Incentive Plan of
    dELiA*s Inc. (incorporated by reference to dELiA*s Inc. Schedule
    14A filed June&nbsp;12, 1998).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.21.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to dELiA*s Inc. Amended and
    Restated 1996 Stock Incentive Plan (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-8 filed
    October&nbsp;17, 2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">1998 Stock Incentive Plan of dELiA*s Inc.
    (incorporated by reference to dELiA*s Inc. Annual Report on Form
    10-K405, filed April&nbsp;19, 1999).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.22.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to dELiA*s , Inc. 1998 Stock
    Incentive Plan (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-8, filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">iTurf Inc. 1999 Amended and Restated Stock
    Incentive Plan (incorporated by reference to Amendment
    No.&nbsp;2 to the iTurf Inc. registration statement on
    Form&nbsp;S-1/A filed April&nbsp;6, 1999 (Registration
    No.&nbsp;333-71123)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.23.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to iTurf Inc. Amended and
    Restated 1999 Stock Incentive Plan (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-8 filed
    October&nbsp;17, 2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement dated May&nbsp;3, 1995 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York (the &#145;Lease
    Agreement&#145;); Modification and Extension of Lease Agreement,
    dated September&nbsp;26, 1996 (incorporated by reference to the
    dELiA*s Inc. Registration Statement on Form&nbsp;S-1 filed
    January&nbsp;25, 1999 (Registration No.&nbsp;333-15153)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.24.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Agreement dated April&nbsp;4, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Annual
    Report on Form 10-K filed).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.24.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Agreement dated October&nbsp;7, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Quarterly
    Report on Form 10-Q filed).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement dated January&nbsp;30, 2000 by
    and between iTurf Inc. and the State-Whitehall Company
    (incorporated by reference to iTurf Inc. Annual Report on Form
    10-K filed).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Loan and Security Agreement dated as of
    September&nbsp;24, 2001 by and among Wells Fargo Retail Finance
    LLC, dELiA*s Corp., dELiA*s Operating Company, dELiA*s
    Distribution Company and dELiA*s Retail Company (incorporated by
    reference to dELiA*s Inc. Current Report on Form 8-K filed
    October&nbsp;10, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, dELiA*s Corp., dELiA*s
    Operating Company, dELiA*s Distribution Company and dELiA*s
    Retail Company, dated October&nbsp;29, 2001 (incorporated by
    reference to dELiA*s Corp. Quarterly Report on Form 10-Q filed
    December&nbsp;17, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Second Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, dELiA*s Corp.,
    dELiA*s Operating Company, dELiA*s Distribution Company and
    dELiA*s Retail Company, dated October&nbsp;21, 2002
    (incorporated by reference to dELiA*s Corp. Current Report on
    Form 8-K filed December&nbsp;13, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Third Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated December&nbsp;18, 2002 (incorporated by reference
    to dELiA*s Corp. Current Report on Form 8-K filed
    February&nbsp;26, 2003).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fourth Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, as lender, and
    dELiA*s Corp., as lead borrower and agent for the other
    borrowers named within, dated February&nbsp;10, 2003
    (incorporated by reference to dELiA*s Current Report on Form
    8-K, filed February&nbsp;26, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fifth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated February&nbsp;10, 2003 (incorporated by reference
    to dELiA*s Current Report on Form 8-K filed February&nbsp;26,
    2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sixth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated April&nbsp;29, 2003 ( incorporated by reference to
    dELiA*s 2002 Annual Report on Form 10-K filed May&nbsp;16, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master License Agreement, dated February&nbsp;24,
    2003, by and between dELiA*s Brand LLC and JLP Daisy LLC
    (incorporated by reference to dELiA*s Current Report on Form 8-K
    filed February&nbsp;26, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated February&nbsp;24, 2003,
    by and between dELiA*s Corp. and dELiA*s Brand LLC (incorporated
    by reference to dELiA*s Current Report on Form 8-K filed
    February&nbsp;26, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Letter, dated October&nbsp;27, 2003,
    between Alloy, Inc. and Robert Bernard (incorporated by
    reference to Alloy&#146;s Quarterly Report on Form 10-Q filed
    December&nbsp;22, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alloy, Inc. Convertible Senior Debentures
    Purchase Agreement, dated as of July&nbsp;17, 2003, by and among
    Alloy and the Initial Purchasers named therein (incorporated by
    reference to Alloy&#146;s Annual Report on Form 10-K, filed
    May&nbsp;27, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Resale Registration Rights Agreement dated as of
    July&nbsp;31, 2003 between Alloy, Inc., Lehman Brothers, Inc.,
    CIBC World Markets Corp., JP Morgan Securities, Inc. and SG
    Cowen Securities Corporation (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-3, filed
    October&nbsp;17, 2003 (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sublease Agreement, dated as of December&nbsp;3,
    2003, by and between MarketSource, L.L.C. and 360 Youth, LLC
    (incorporated by reference to Alloy&#146;s Annual Report on Form
    10-K, filed May&nbsp;27, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Mortgage Note dated August&nbsp;6, 1999 made by
    dELiA*s Distribution Company in favor of Allfirst Bank
    (incorporated by reference to dELiA*s Inc. Quarterly Report on
    Form 10-Q filed September&nbsp;14, 1999).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.33.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Mortgage Note&nbsp;Modification Agreement and
    Declaration of No Set-off dated April&nbsp;19, 2004, between
    dELiA*s Distribution Company and Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy&#146;s Quarterly
    Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Construction Loan Agreement dated August&nbsp;6,
    1999, among dELiA*s Distribution Company, dELiA*s Inc. and
    Allfirst Bank (incorporated by reference to dELiA*s Inc.
    Quarterly Report on Form&nbsp;10-Q filed September&nbsp;14,
    1999).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.34.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Construction Loan Agreement, dated
    April&nbsp;19, 2004, among dELiA*s Distribution Company, dELiA*s
    Corp. and Alloy, Inc. (incorporated by reference to Alloy&#146;s
    Quarterly Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Continuing Guaranty dated April&nbsp;19, 2004,
    given by dELiA*s Corp. in favor of Manufacturers and Traders
    Trust Company (incorporated by reference to Alloy&#146;s
    Quarterly Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.35.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Continuing Guaranty dated April&nbsp;19, 2004,
    given by Alloy, Inc. in favor of Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy&#146;s Quarterly
    Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Ratio of Earnings to Fixed Charges.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">16</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Letter from KPMG&nbsp;LLP to the Securities and
    Exchange Commission dated June&nbsp;7, 2004 (incorporated by
    reference to Alloy&#146;s Current Report on Form 8-K/A, filed
    June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Subsidiaries of Alloy, Inc. as of June&nbsp;30,
    2004.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of KPMG LLP, Independent Registered
    Public Accounting Firm.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Katten Muchin Zavis Rosenman (included
    in Exhibits&nbsp;5.1 and 5.2).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Power of Attorney (included on signature page).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-7
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">25</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form T-1 Statement of Eligibility and
    Qualification under the Trust Indenture Act of 1939, under the
    Indenture (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-3 filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*</FONT></TD>
    <TD align="left">
    <FONT size="2">Filed herewith.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">**&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(b)<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">Financial Statements Schedules</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Financial Statements Schedules are omitted
because the information is included in the Financial Statements
or notes thereto.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;17.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Undertakings.</FONT></I></B></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(a)<I>&nbsp;</I></FONT></TD>
    <TD align="left">
    <I><FONT size="2">The Registrant hereby undertakes:</FONT></I></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;to file, during any period in which
    offers or sales are being made, a post-effective amendment to
    this registration statement:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;To include any prospectus required by
    Section&nbsp;10(a)(3) of the Securities Act of 1933;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;To reflect in the prospectus any facts
    or events arising after the effective date of the registration
    statement (or the most recent post-effective amendment thereof)
    which, individually or in the aggregate, represent a fundamental
    change in the information set forth in the registration
    statement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iii)&nbsp;To include any material information
    with respect to the plan of distribution not previously
    disclosed in the registration statement or any material change
    to such information in the registration statement.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;That, for the purpose of determining any
    liability under the Securities Act of 1933, each such
    post-effective amendment shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;To remove from registration by means of
    a post-effective amendment any of the securities being
    registered which remain unsold at the termination of the
    offering.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
</FONT>

<P align="center"><FONT size="2">II-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "SIGNATURES" -->

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on
July&nbsp;1, 2004.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">ALLOY, INC.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">(Registrant)
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="center">
    <FONT size="2">/s/ MATTHEW C. DIAMOND
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Name:&nbsp;&nbsp;Matthew C. Diamond
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="8%"></TD>
    <TD width="52%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">Title:</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Chief Executive Officer and Chairman</FONT></I></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">POWER OF ATTORNEY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">KNOW ALL PERSONS BY THESE PRESENTS that each
individual whose signature appears below constitutes and
appoints Matthew C. Diamond and Samuel A. Gradess, and each of
them, as his or her true and lawful attorneys-in-fact and agent,
with full power of substitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to
this registration statement, and to sign any registration
statement for the same offering covered by this registration
statement that is to be effective upon filing pursuant to
Rule&nbsp;462 promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with
all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his, her or
their substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with the requirements of the
Securities Act, this registration statement was signed by the
following persons in the capacities and on the dates indicated.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Signatures</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ MATTHEW C. DIAMOND<BR>
    <HR size="1" noshade>Matthew C. Diamond
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chief Executive Officer (Principal Executive
    Officer) and Chairman
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July&nbsp;1, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ SAMUEL A. GRADESS<BR>
    <HR size="1" noshade>Samuel A. Gradess
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chief Financial Officer (Principal Financial and
    Accounting Officer), Secretary and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July&nbsp;1, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ JAMES K. JOHNSON,&nbsp;JR.<BR>
    <HR size="1" noshade>James K. Johnson,&nbsp;Jr.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">President, Chief Operating Officer and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July&nbsp;1, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ PETER M. GRAHAM<BR>
    <HR size="1" noshade>Peter M. Graham
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July&nbsp;1, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ EDWARD MONNIER<BR>
    <HR size="1" noshade>Edward Monnier
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July&nbsp;1, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ ANTHONY N. FIORE<BR>
    <HR size="1" noshade>Anthony N. Fiore
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">July&nbsp;1, 2004
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">II-9
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<!-- link1 "INDEX TO EXHIBITS" -->

<P align="center">
<B><FONT size="2">INDEX TO EXHIBITS</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Acquisition Agreement by and among Alloy, Inc.,
    Dodger Acquisition Corp. and dELiA*s Corp., dated as of
    July&nbsp;30, 2003 (incorporated by Reference to Alloy&#146;s
    Current Report on Form 8-K filed July&nbsp;31, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Restated Certificate of Incorporation of Alloy
    Online, Inc. (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Amendment of Certificate of
    Incorporation of Alloy Online, Inc. (incorporated by reference
    to Alloy&#146;s Current Report on Form 8-K filed August&nbsp;13,
    2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Amendment of Restated Certificate
    of Incorporation of Alloy Online, Inc. (incorporated by
    reference to Alloy&#146;s Current Report on Form 8-K filed
    March&nbsp;13, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Designations, Preferences and
    Rights of the Series&nbsp;B Convertible Preferred Stock of Alloy
    Online, Inc. (incorporated by reference to Alloy&#146;s Current
    Report on Form 8-K filed June&nbsp;21, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certificate of Designations of Series&nbsp;C
    Junior Participating Preferred Stock of Alloy, Inc.
    (incorporated by reference to Alloy&#146;s Current Report on
    Form 8-K filed April&nbsp;14, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Restated Bylaws (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-1 filed
    March&nbsp;10, 1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Common Stock Certificate (incorporated by
    reference to Alloy&#146;s Registration Statement on
    Form&nbsp;S-1 filed March&nbsp;10, 1999 (Registration
    Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    November&nbsp;26, 2001, issued by Alloy, Inc. to MarketSource
    Corporation (incorporated by reference to Alloy&#146;s Current
    Report on Form 8-K filed December&nbsp;11, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    January&nbsp;28, 2002, issued by Alloy, Inc. to Fletcher
    International Ltd. (incorporated by reference to Alloy&#146;s
    Current Report on Form 8-K/ A filed February&nbsp;1, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Warrant to Purchase Common Stock, dated
    as of June&nbsp;19, 2001, issued by Alloy Online, Inc. to each
    of the purchasers of Alloy&#146;s Series&nbsp;B Preferred Stock
    (incorporated by reference to Alloy&#146;s Current Report on
    Form 8-K filed June&nbsp;21, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    March&nbsp;18, 2002, issued by Alloy, Inc. to Craig T. Johnson
    (incorporated by reference to Alloy&#146;s 2002 Annual Report on
    form 10-K filed May&nbsp;1, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrants to Purchase Common Stock, dated as of
    March&nbsp;18, 2002, issued by Alloy, Inc. to (i) Debra Lynn
    Millman, (ii) Kim Suzanne Millman, and (iii) Ronald J. Bujarski
    (substantially identical to Warrant referenced as
    Exhibit&nbsp;4.5 in all material respects, and not filed with
    Alloy&#146;s 2002 Annual Report on Form&nbsp;10-K, filed
    May&nbsp;1, 2003, pursuant to Instruction&nbsp;2 of
    Item&nbsp;601 of Regulation&nbsp;S-K).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant to Purchase Common Stock, dated as of
    November&nbsp;1, 2002, issued by Alloy, Inc. to Alan M. Weisman
    (incorporated by reference to Alloy&#146;s 2002 Annual Report on
    form 10-K filed May&nbsp;1, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of 5.375% Global Convertible Senior
    Debenture due 2023 in the aggregate principal amount of
    $69,300,000 (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-3 filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indenture between Alloy, Inc. and Deutsche Bank
    Trust Company Americas, dated as of July&nbsp;23, 2003
    (incorporated by reference to Alloy&#146;s Registration
    Statement on Form&nbsp;S-3 filed October&nbsp;17, 2003
    (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the debentures being registered (incorporated by
    referenced to Alloy&#146;s Registration Statement on
    Form&nbsp;S-3 filed October&nbsp;17, 2003 (Registration
    Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the shares of common stock being registered.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alloy, Inc. Amended and Restated 1997 Employee,
    Director and Consultant Stock Option and Stock Incentive Plan
    (incorporated by reference to Alloy&#146;s 2002 Annual Report on
    form 10-K filed May&nbsp;1, 2003).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Alloy, Inc. Amended and
    Restated 1997 Employee, Director and Consultant Stock Option and
    Stock Incentive Plan (incorporated by reference to Alloy&#146;s
    Proxy Statement on Schedule 14A filed on June&nbsp;2, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="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&#146;s
    Registration Statement on Form&nbsp;S-8 filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Alloy, Inc. 2002 Incentive
    and Non-Qualified Stock Option Plan (incorporated by reference
    to Alloy&#146;s 2002 Annual Report on Form 10-K filed
    May&nbsp;1, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement dated February&nbsp;1, 2004
    between Matthew C. Diamond and Alloy Inc. (incorporated by
    reference to Alloy&#146;s Annual Report on Form 10-K, filed
    May&nbsp;27, 2004)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement dated February&nbsp;1, 2004
    between James K. Johnson,&nbsp;Jr. and Alloy, Inc. (incorporated
    by reference to Alloy&#146;s Annual Report on Form 10-K, filed
    May&nbsp;27, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement dated April&nbsp;19, 1999
    between Samuel A. Gradess and Alloy Online, Inc. (incorporated
    by reference to Alloy&#146;s Registration Statement on
    Form&nbsp;S-1 filed March&nbsp;10, 1999 (Registration
    Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated November&nbsp;24, 1998 between Matthew C. Diamond and
    Alloy Online, Inc. (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated November&nbsp;24, 1998 between James K. Johnson,&nbsp;Jr.
    and Alloy Online, Inc. (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-1 filed
    March&nbsp;10, 1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated November&nbsp;24, 1998 between Samuel A. Gradess and Alloy
    Online, Inc. (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Offer Letter dated May&nbsp;24, 2000
    between Robert Bell and Alloy Online, Inc. (incorporated by
    reference to Alloy&#146;s 2000 Annual Report on Form 10-K filed
    May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Competition and Confidentiality Agreement
    dated March&nbsp;24, 2000 between Robert Bell and Alloy Online,
    Inc. (incorporated by reference to Alloy&#146;s 2000 Annual
    Report on Form 10-K filed May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Incentive Stock Option Agreement dated as of
    July&nbsp;19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy&#146;s 2000 Annual Report on
    Form 10-K filed May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Non-Qualified Stock Option Agreement dated as of
    July&nbsp;19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy&#146;s 2000 Annual Report on
    Form 10-K filed May&nbsp;1, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Flexible Standardized 401(k) Profit Sharing Plan
    Adoption Agreement (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1 filed March&nbsp;10,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">1999 Employee Stock Purchase Plan (incorporated
    by reference to Amendment No.&nbsp;2 to Alloy&#146;s
    Registration Statement on Form&nbsp;S-1/A filed April&nbsp;22,
    1999 (Registration Number&nbsp;333-74159)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement, dated as of
    June&nbsp;19, 2001, by and among Alloy Online, Inc, BayStar
    Capital, L.P., BayStar International, Ltd., Lambros, L.P.,
    Crosslink Crossover Fund&nbsp;III, L.P., Offshore Crosslink
    Crossover Fund&nbsp;III Unit Trust, Bayview Partners, the Peter
    M. Graham Money Purchase Plan and Trust and Elyssa Kellerman
    (incorporated by reference to Alloy&#146;s Current Report on
    Form 8-K filed June&nbsp;20, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Standard Office Lease between Arden Realty
    Finance Partnership, L.P. and Cass Communications, Inc., dated
    as of September&nbsp;11, 1998 (incorporated by reference to
    Alloy&#146;s Quarterly Report on Form 10-Q filed
    September&nbsp;14, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.16.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Standard Office Lease, dated
    as of November&nbsp;1, 2001, by and between Arden Realty Finance
    Partnership, L.P. and Alloy, Inc. (incorporated by reference to
    Alloy&#146;s 2001 Annual Report on Form 10-K filed May&nbsp;1,
    2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement by and between Bike Land, LLC and
    Dan&#146;s Competition, Inc., dated September&nbsp;28, 2001
    (incorporated by reference to Alloy&#146;s Quarterly Report on
    Form 10-Q filed December&nbsp;17, 2001).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Modification to Lease, dated November&nbsp;2,
    1999, by and between Alloy, Inc. and Abner Properties Company,
    dated April&nbsp;16, 2002 (incorporated by reference to
    Alloy&#146;s Quarterly Report on Form 10-Q filed June&nbsp;14,
    2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Second Lease Modification Agreement between
    Alloy, Inc. and Abner Properties Company, c/o&nbsp;Williams Real
    Estate Co., Inc., dated as of January&nbsp;28, 2002
    (incorporated by reference to Alloy&#146;s Annual Report on Form
    10-K filed May&nbsp;1, 2002). Third lease modification dated
    August&nbsp;31, 2002.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.18.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Third Lease Modification and Extension Agreement,
    dated as of August&nbsp;31, 2002 between Abner Properties
    Company c/o&nbsp;Williams USA Realty Services, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy&#146;s Quarterly Report
    on Form 10-Q filed December&nbsp;16, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Assignment and Assumption of Lease between Alloy,
    Inc. and Goldfarb&nbsp;&#38; Abrandt dated as of
    February&nbsp;1, 2002 (incorporated by reference to Alloy&#146;s
    Annual Report on Form 10-K filed May&nbsp;1, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Services Agreement, dated as of
    February&nbsp;1, 2002, by and between NewRoads, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy&#146;s Quarterly Report
    on Form 10-Q filed June&nbsp;14, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated 1996 Stock Incentive Plan of
    dELiA*s Inc. (incorporated by reference to dELiA*s Inc. Schedule
    14A filed June&nbsp;12, 1998).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.21.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to dELiA*s Inc. Amended and
    Restated 1996 Stock Incentive Plan (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-8 filed
    October&nbsp;17, 2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">1998 Stock Incentive Plan of dELiA*s Inc.
    (incorporated by reference to dELiA*s Inc. Annual Report on Form
    10-K405, filed April&nbsp;19, 1999).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.22.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to dELiA*s , Inc. 1998 Stock
    Incentive Plan (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-8, filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">iTurf Inc. 1999 Amended and Restated Stock
    Incentive Plan (incorporated by reference to Amendment
    No.&nbsp;2 to the iTurf Inc. registration statement on
    Form&nbsp;S-1/A filed April&nbsp;6, 1999 (Registration
    No.&nbsp;333-71123)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.23.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to iTurf Inc. Amended and
    Restated 1999 Stock Incentive Plan (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-8 filed
    October&nbsp;17, 2003 (Registration Number&nbsp;333-109788)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement dated May&nbsp;3, 1995 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York (the &#145;Lease
    Agreement&#145;); Modification and Extension of Lease Agreement,
    dated September&nbsp;26, 1996 (incorporated by reference to the
    dELiA*s Inc. Registration Statement on Form&nbsp;S-1 filed
    January&nbsp;25, 1999 (Registration No.&nbsp;333-15153)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.24.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Agreement dated April&nbsp;4, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Annual
    Report on Form 10-K filed).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.24.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Agreement dated October&nbsp;7, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Quarterly
    Report on Form 10-Q filed).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement dated January&nbsp;30, 2000 by
    and between iTurf Inc. and the State-Whitehall Company
    (incorporated by reference to iTurf Inc. Annual Report on Form
    10-K filed).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Loan and Security Agreement dated as of
    September&nbsp;24, 2001 by and among Wells Fargo Retail Finance
    LLC, dELiA*s Corp., dELiA*s Operating Company, dELiA*s
    Distribution Company and dELiA*s Retail Company (incorporated by
    reference to dELiA*s Inc. Current Report on Form 8-K filed
    October&nbsp;10, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">First Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, dELiA*s Corp., dELiA*s
    Operating Company, dELiA*s Distribution Company and dELiA*s
    Retail Company, dated October&nbsp;29, 2001 (incorporated by
    reference to dELiA*s Corp. Quarterly Report on Form 10-Q filed
    December&nbsp;17, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Second Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, dELiA*s Corp.,
    dELiA*s Operating Company, dELiA*s Distribution Company and
    dELiA*s Retail Company, dated October&nbsp;21, 2002
    (incorporated by reference to dELiA*s Corp. Current Report on
    Form 8-K filed December&nbsp;13, 2002).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Third Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated December&nbsp;18, 2002 (incorporated by reference
    to dELiA*s Corp. Current Report on Form 8-K filed
    February&nbsp;26, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fourth Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, as lender, and
    dELiA*s Corp., as lead borrower and agent for the other
    borrowers named within, dated February&nbsp;10, 2003
    (incorporated by reference to dELiA*s Current Report on Form
    8-K, filed February&nbsp;26, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fifth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated February&nbsp;10, 2003 (incorporated by reference
    to dELiA*s Current Report on Form 8-K filed February&nbsp;26,
    2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.26.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sixth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated April&nbsp;29, 2003 ( incorporated by reference to
    dELiA*s 2002 Annual Report on Form 10-K filed May&nbsp;16, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master License Agreement, dated February&nbsp;24,
    2003, by and between dELiA*s Brand LLC and JLP Daisy LLC
    (incorporated by reference to dELiA*s Current Report on Form 8-K
    filed February&nbsp;26, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">License Agreement, dated February&nbsp;24, 2003,
    by and between dELiA*s Corp. and dELiA*s Brand LLC (incorporated
    by reference to dELiA*s Current Report on Form 8-K filed
    February&nbsp;26, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Letter, dated October&nbsp;27, 2003,
    between Alloy, Inc. and Robert Bernard (incorporated by
    reference to Alloy&#146;s Quarterly Report on Form 10-Q filed
    December&nbsp;22, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Alloy, Inc. Convertible Senior Debentures
    Purchase Agreement, dated as of July&nbsp;17, 2003, by and among
    Alloy and the Initial Purchasers named therein (incorporated by
    reference to Alloy&#146;s Annual Report on Form 10-K, filed
    May&nbsp;27, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Resale Registration Rights Agreement dated as of
    July&nbsp;31, 2003 between Alloy, Inc., Lehman Brothers, Inc.,
    CIBC World Markets Corp., JP Morgan Securities, Inc. and SG
    Cowen Securities Corporation (incorporated by reference to
    Alloy&#146;s Registration Statement on Form&nbsp;S-3, filed
    October&nbsp;17, 2003 (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sublease Agreement, dated as of December&nbsp;3,
    2003, by and between MarketSource, L.L.C. and 360 Youth, LLC
    (incorporated by reference to Alloy&#146;s Annual Report on Form
    10-K, filed May&nbsp;27, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Mortgage Note dated August&nbsp;6, 1999 made by
    dELiA*s Distribution Company in favor of Allfirst Bank
    (incorporated by reference to dELiA*s Inc. Quarterly Report on
    Form 10-Q filed September&nbsp;14, 1999).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.33.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Mortgage Note&nbsp;Modification Agreement and
    Declaration of No Set-off dated April&nbsp;19, 2004, between
    dELiA*s Distribution Company and Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy&#146;s Quarterly
    Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Construction Loan Agreement dated August&nbsp;6,
    1999, among dELiA*s Distribution Company, dELiA*s Inc. and
    Allfirst Bank (incorporated by reference to dELiA*s Inc.
    Quarterly Report on Form&nbsp;10-Q filed September&nbsp;14,
    1999).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.34.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Construction Loan Agreement, dated
    April&nbsp;19, 2004, among dELiA*s Distribution Company, dELiA*s
    Corp. and Alloy, Inc. (incorporated by reference to Alloy&#146;s
    Quarterly Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Continuing Guaranty dated April&nbsp;19, 2004,
    given by dELiA*s Corp. in favor of Manufacturers and Traders
    Trust Company (incorporated by reference to Alloy&#146;s
    Quarterly Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.35.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Continuing Guaranty dated April&nbsp;19, 2004,
    given by Alloy, Inc. in favor of Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy&#146;s Quarterly
    Report on Form 10-Q, filed June&nbsp;9, 2004).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Ratio of Earnings to Fixed Charges.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">16</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Letter from KPMG LLP to the Securities and
    Exchange Commission dated June&nbsp;7, 2004 (incorporated by
    reference to Alloy&#146;s Current Report on Form&nbsp;8-K/A,
    filed June&nbsp;9, 2004.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Subsidiaries of Alloy, Inc. as of June&nbsp;30,
    2004.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of KPMG LLP, Independent Registered
    Public Accounting Firm.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Katten Muchin Zavis Rosenman (included
    in Exhibits&nbsp;5.1 and 5.2).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Power of Attorney (included on signature page).
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">25</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form T-1 Statement of Eligibility and
    Qualification under the Trust Indenture Act of 1939, under the
    Indenture (incorporated by reference to Alloy&#146;s
    Registration Statement on Form&nbsp;S-3 filed October&nbsp;17,
    2003 (Registration Number&nbsp;333-109786)).
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

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<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Filed herewith.
    </FONT></TD>
</TR>

</TABLE>
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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">**&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>
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</HTML>
[{"type": "S-1", "sequence": "1", "filename": "y98556sv1.htm", "description": "FORM S-1", "secsgml_size_bytes": 2074005}]
{"company-data": {"conformed-name": "ALLOY  INC", "cik": "0001080359", "assigned-sic": "5961", "irs-number": "043310676", "state-of-incorporation": "DE", "fiscal-year-end": "0131"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-117046", "film-number": "04892640"}, "business-address": {"street1": "151 WEST 26TH STREET", "street2": "11TH FLOOR", "city": "NEW YORK", "state": "NY", "zip": "10001", "phone": "2122444307"}, "mail-address": {"street1": "151 WEST 26TH STREET", "street2": "11TH FLOOR", "city": "NEW YORK", "state": "NY", "zip": "10001"}, "former-company": [{"former-conformed-name": "ALLOY ONLINE INC", "date-changed": "19990309"}, {"former-conformed-name": "ALLOY COM INC", "date-changed": "19990224"}]}
FORM S-1
As filed with the Securities and Exchange
Commission on July 1, 2004
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Alloy, Inc.
(Exact name of registrant as specified in its
charter)
Delaware
5961
04-3310676
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code No.)
(I.R.S. Employer
Identification No.)
151 West 26th Street, 11th Floor, New York,
New York, 10001, (212) 244-4307
(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
Matthew C. Diamond
Chief Executive Officer
Alloy, Inc.
151 W 26th Street, Suite 11th
Floor
New York NY 10001
(212) 244-4307
(Name, address, including zip code, and
telephone number, including area code, of agent for
service)
Copies to:
Samuel A. Gradess
Chief Financial Officer
Alloy, Inc.
151 W 26th Street, Suite 11th Floor
New York NY 10001
(212) 244-4307
Richard M. Graf
Katten Muchin Zavis Rosenman
1025 Thomas Jefferson Street, N.W.
East Lobby, Suite 700
Washington, D.C. 20007-5201
(202) 625-3537
Approximate date of
commencement of proposed sale to the public:
From time to time after the effective date of
this Registration Statement.
If any of the securities being
registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following
box.
þ
If this Form is filed to
register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a
post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If this Form is a
post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If delivery of the prospectus
is expected to be made pursuant to Rule 434, check the
following box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Proposed Maximum
Amount of
Title of Each Class of
Amount to be
Offering Price
Aggregate
Registration
Securities to be Registered
Registered(1)
Per Share or Debenture
Offering Price
Fee
5.375% Convertible Senior Debentures due 2023
$47,100,000(2)
100%(3)
100%(3)
(6)
Common Stock, $0.01 par value
6,873,883(4)
$5.69(5)
$39,112,394.27
$901.15(1)(6)
Preferred Stock Purchase Rights
6,873,883(6)
—
—
(6)
(1)
Pursuant to Rule 429 under the Securities
    Act of 1933, as amended, this Registration Statement contains a
    Prospectus that also relates to $47,100,000 in aggregate
    principal amount of Registrant's 5.375% Convertible
    Senior Debentures Due 2023 (the "Debentures"),
    5,623,882 shares of the Registrant's common stock that
    are currently issuable upon conversion of the Debentures (the
    "Previously Registered Common Stock") and
    5,623,882 shares of the Registrant's Preferred Stock
    Purchase Rights that represent Rights to acquire shares of the
    Registrant's Series C Junior Participating Preferred
    Stock which are attached to and trade with the common stock of
    the Registrant (the "Previously Registered Preferred Stock
    Purchase Rights," and together with the Debentures and the
    Previously Registered Common Stock, the "Previously
    Registered Securities"), registered by the
    Registrant's Registration Statement on Form S-3
    previously filed with the Commission on October 17, 2003
    (No. 333-109786). A filing fee of $5606.37 was paid previously
    by the Registrant in connection with the registration of the
    Previously Registered Securities.
(2)
Represents the aggregate principal amount of the
    debentures that were originally issued by the Registrant, but
    were not sold under the Registration Statement on Form S-3
    previously filed with the Commission on October 17,
    2003 (No. 333-109786).
(3)
Equals the actual issue price of the aggregate
    principal amount of the debentures being registered. Estimated
    solely for the purpose of computing the registration fee
    pursuant to Rule 457(o) under the Securities Act.
(4)
Represents 1,250,001 shares of common stock
    that were issued in connection with our acquisition of InSite
    Advertising, Inc. and 5,623,882 shares of common stock that
    are currently issuable upon conversion of the Debentures. The
    number of shares of common stock that may be issued in the
    future is indeterminate, and the Registrant is also registering
    this indeterminate amount pursuant to Rule 416 of the
    Securities Act.
(5)
The price of $5.69 per share, which was the
    average of the high and low prices of the Registrant's
    Common Stock, as reported on the Nasdaq National Market on
    June 24, 2004, is set forth solely for purposes of
    calculating the registration fee pursuant to Rule 457(c) of
    the Act, as amended.
(6)
No separate consideration will be received for
    the 5,623,882 shares of common stock issuable upon conversion of
    the Debentures and, therefore, no registration fee is required
    pursuant to Rule 457(i) under the Securities Act in
    connection with the registration of such shares.
(7)
Rights to acquire shares of the Registrant's
    Series C Junior Participating Preferred Stock are attached
    to and trade with the common stock of the Registrant. Value
    attributable to such rights, if any, is reflected in the market
    price of the common stock. No registration fee is required
    pursuant to Rule 457(h)(2).
The Registrant hereby
amends this Registration Statement on such date or dates as may
be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to
Section 8(a), may determine.
The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED
JULY 1, 2004
PROSPECTUS
Alloy, Inc.
1,250,001 Shares of Common Stock and
Preferred Stock Purchase Rights
$47,100,000 Aggregate Principal Amount of
Alloy, Inc.
5.375% Convertible Senior Debentures due
2023 and Shares of
Common Stock and Preferred Stock Purchase
Rights
Issuable Upon Conversion of the
Debentures
We have prepared
this prospectus to allow the selling stockholders we describe to
sell up to 1,250,001 shares of our common stock. The
selling stockholders acquired and may acquire the shares being
registered hereby in connection with our acquisition of InSite
Advertising, Inc. ("InSite"). We also sold $69,300,000
aggregate principal amount of our 5.375% Convertible Senior
Debentures due 2023 in private transactions, which closed
July 23, 2003 and August 20, 2003, $22,200,000 of
which were sold pursuant to the Registration Statement on
Form S-3 previously filed with the Commission on
October 17, 2003 (Registration No. 333-109786).
Selling debentureholders may use this Prospectus to resell from
time to time their debentures and the shares of common stock
issuable upon conversion of the debentures. We will not receive
any of the proceeds from the sale of any of these securities.
DEBENTURES; CONVERSION
We will pay 5.375%
interest per annum on the outstanding principal amount of each
debenture, payable semi-annually in arrears on February 1 and
August 1 of each year beginning on February 1, 2004.
The debentures will mature on August 1, 2023.
The debentures are
convertible at the holder's option into shares of our
common stock at an initial conversion price of $8.375 per
share, which is equal to a conversion rate of approximately
119.403 shares per $1,000 principal amount of debentures,
subject to adjustment, under the following circumstances only:
•
during any "Conversion Period" (which
    is any period from and including the thirtieth trading day in
    any fiscal quarter of ours to, but not including, the thirtieth
    trading day in the immediately following fiscal quarter) if the
    closing sale price of our common stock for at least 20
    consecutive trading days in the 30 consecutive trading-day
    period ending on the last trading day of the immediately
    preceding fiscal quarter exceeds 110% of the conversion price on
    that 30th trading day,
•
on or before August 15, 2018, during any 5
    business day period immediately following any 10 consecutive
    trading-day period (the "Debenture Measurement
    Period") in which the average trading price for the
    debentures during that Debenture Measurement Period was less
    than 98% of the average conversion value for the debentures
    during such Debenture Measurement Period,
•
upon the occurrence of certain specified
    corporate transactions, or
•
if we have called the debentures for redemption.
DEBENTURE REDEMPTION AND REPURCHASE
We may not redeem
the debentures prior to August 1, 2008. Thereafter, we may
redeem the debentures, in whole or in part, at the redemption
prices specified elsewhere in this prospectus. See
"Description of the Debentures — Optional
Redemption."
Debenture holders
may require us to repurchase for cash all or a portion of their
debentures on August 1, 2008, 2013 and 2018 at a repurchase
price equal to 100% of the principal amount of their debentures
plus any accrued and unpaid interest to, but excluding, the date
of repurchase.
Debenture holders
may require us to repurchase for cash all or a portion of their
debentures upon a change of control, in certain circumstances
and subject to certain conditions. In such case, we will pay a
repurchase price equal to 100% of the principal amount of the
debentures being repurchased plus accrued and unpaid interest
to, but excluding, the repurchase date.
The debentures
originally sold in private placement transactions are eligible
for trading in the PORTAL
SM
Market of the National
Association of Securities Dealers, Inc. The debentures sold
using this prospectus, however, will no longer be eligible for
trading in the PORTAL
SM
Market. We do not intend to
list the debentures on any other national securities exchange or
in any automated quotation system.
Our common stock is
traded on the Nasdaq National Market under the trading symbol
"ALOY." On June 30, 2004, the last reported sale
price for our common stock on the Nasdaq National Market was
$6.15 per share.
Investing in our common stock
and debentures involves risks
See "Risk Factors That May Affect Future Results"
beginning on page 7
Neither the Commission nor any state
securities regulator has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. It is a criminal offense to make any representation
to the contrary.
This prospectus is
dated                     ,
2004.
You should rely only on the information
contained in this prospectus. We have not authorized anyone to
provide you with information different from that contained in
this prospectus. Neither the delivery of this prospectus nor any
distribution of the debentures or shares of common stock
pursuant to this prospectus shall, under any circumstances,
create any implication that there has been no change in our
affairs since the date of this prospectus.
TABLE OF CONTENTS
Prospectus Summary
1
Risk Factors That May Affect
    Future Results
7
You Should Not Rely on
    Forward Looking Statements Because They are Inherently
    Uncertain
16
Ratio of Earnings to Fixed
    Charges
16
Use of Proceeds
17
Common Stock Price Ranges
17
Dividend Policy
17
Selected Financial Data
18
Management's Discussion
    and Analysis
20
Our Business
37
Properties
46
Legal Proceedings
47
Management
50
Executive Compensation
54
Certain Relationships and
    Related Party Transactions
57
Principal and Selling
    Securityholders
57
Description of Capital
    Stock
62
Description of the
    Debentures
65
Certain United States
    Federal Income Tax Consequences
81
Plan of Distribution
86
Legal Matters
88
Experts
88
Where You Can Find More
    Information
88
ii
PROSPECTUS SUMMARY
This summary highlights certain information
contained elsewhere in this prospectus. This summary does not
contain all of the information you should consider before
investing in the debentures. You should carefully read the
entire prospectus, including "Risk factors" and our
financial statements and related notes, before you decide
whether to invest in the debentures or common stock. References
to "we," "our," "our company,"
"us," "the Company" or "Alloy"
refer to Alloy, Inc.
OUR COMPANY
We are a media, marketing services, direct
marketing and retail company targeting Generation Y, the
approximately 60 million boys and girls in the United
States between the ages of 10 and 24. Our business integrates
direct mail catalogs, retail stores, print media, display media
boards, websites, on-campus marketing programs and promotional
events, and features a portfolio of brands that are well known
among Generation Y consumers and advertisers. We reach a
significant portion of Generation Y consumers through our
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, we are
able to offer advertisers targeted access to the youth market.
We sell third-party branded and private label products in key
Generation Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, our assets have enabled us to build a
comprehensive database that includes information about
approximately 27 million Generation Y consumers.
We generate revenue from three principal
sources — direct marketing, retail stores, and
sponsorship and other activities. From our catalogs and
websites, we sell branded products in key Generation Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Our dELiA*s retail
stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. We
generate sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach
Generation Y. Advertisers can reach Generation Y
through integrated marketing programs that include our catalogs,
books, websites, and display media boards, as well as through
promotional events, product sampling, college and high school
newspaper advertising, customer acquisition programs and other
marketing services that we provide.
OUR MEDIA AND MARKETING PROPERTIES
Our business integrates the following assets to
deliver comprehensive access to Generation Y:
DIRECT MARKETING CATALOGS &
WEBSITES
Alloy
Markets apparel, accessories and housewares
    targeting girls; website (www.alloy.com) provides commerce and
    interactive content.
dELiA*s
Markets apparel, accessories, home furnishings
    and housewares targeting teenage girls and young women; website
    (www.delias.com) provides commerce and interactive content.
CCS
Markets skateboarding and snowboarding related
    equipment, apparel and accessories targeting boys; website
    (www.ccs.com) provides commerce and interactive content.
Dan's Comp
Markets BMX bikes and related equipment, apparel
    and accessories targeting boys; website (www.danscomp.com)
    provides commerce and content.
MARKETING SERVICES AND PROMOTIONAL
MARKETING
360 Youth
Our media and marketing arm, which includes the
    assets and experience of several college and teen marketing
    companies, including CASS Communications, Market Place Media,
    Youthstream and
1
others; enables advertising clients to reach more
    than 25 million Generation Y consumers each month
    through a mix of programs incorporating proprietary media assets
    such as school-based media boards, websites and catalogs, as
    well as college, high school, military base and multi-cultural
    newspapers.
Alloy Marketing and Promotions
Our promotional marketing unit specializing in
    event and field marketing, sampling and acquisitions programs;
    includes the assets and experience of established promotion
    agencies and marketing services companies, including the 360
    Youth business of MarketSource Corporation, Triple Dot
    Communications, Y-Access and Target Marketing &
    Promotions.
On Campus Marketing
Direct marketer of college- or
    university-endorsed products.
InSite Advertising
Out-of-home display advertising in bars,
    restaurants and nightclubs, and event and promotional marketing;
eStudentLoan
Website featuring college scholarship and
    financial aid database search engines.
PRINT MEDIA
Private Colleges & Universities
Publishes college and university guide books
    distributed to college-bound high school students and operates
    related websites.
Career Recruitment Media
Publishes targeted career recruitment
    publications.
Alloy Entertainment/ 17th Street Productions
Develops books and other entertainment properties.
RETAIL STORES
dELiA*s
As of June 8, 2004 we operated 57 dELiA*s
    stores, including six outlet stores, in 22 states. These
    stores range in size from 2,500 to 5,100 square feet with
    an average size of approximately 4,375 square feet.
Our principal executive offices are located at
151 W. 26th Street, 11th Floor, New York, NY 10001.
Our telephone number is (212) 244-4307.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the ratio of earnings
to fixed charges for us and our consolidated subsidiaries for
the periods indicated.
Years ended January 31,
Three months
ended
2000
2001
2002
2003
2004
April 30, 2004
—(a
)
—(b
)
—
(c)
6.9
—(d
)
—(e
)
These ratios have been calculated by dividing
(i) income before income taxes plus fixed charges (adjusted
for capitalized interest) by (ii) fixed charges. Fixed
charges consist of interest incurred (expensed or capitalized),
preferred stock dividends and accretion of discount and the
portion of rent expense (one-third) on our operating leases
which we believe is deemed representative of interest.
(a) Due to our loss for the fiscal year
ended January 31, 2000 ("fiscal 1999"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $14.634 million to achieve a
coverage of 1:1.
2
(b) Due to our loss for the fiscal year
ended January 31, 2001 ("fiscal 2000"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $29.689 million to achieve a
coverage of 1:1.
(c) Due to our loss for the fiscal year
ended January 31, 2002 ("fiscal 2001"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $18.378 million to achieve a
coverage of 1:1.
(d) Due to our loss for the fiscal year
ended January 31, 2004 ("fiscal 2003"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $71.744 million to achieve a
coverage of 1:1.
(e) Due to our loss for the three months
ended April 30, 2004, the ratio coverage was less than 1:1.
We would have needed to generate additional earnings of
$9.627 million to achieve a coverage of 1:1.
3
THE COMMON STOCK OFFERING
Issuer
Alloy, Inc.
Securities Offered
1,250,001 shares of our common stock, par
    value $0.01 per share.
Nasdaq National Market Symbol for our Common Stock
"ALOY"
THE DEBENTURE OFFERING
Issuer
Alloy, Inc.
Securities Offered
$47,100,000 aggregate principal amount of our
    5.375% Convertible Senior Debentures due 2023.
Maturity Date
August 1, 2023 unless earlier redeemed,
    repurchased or converted.
Ranking
The debentures are our senior unsecured
    obligations and rank equal in right of payment with all of our
    existing and future senior unsecured indebtedness.
Interest Payment Dates
February 1 and August 1, beginning
    February 1, 2004.
Interest Rate
5.375% per annum.
Conversion Right
Each Holder may convert all or any part of that
    holder's debentures prior to the close of business on such
    debenture's stated maturity date under any of the following
    circumstances:
• during any fiscal quarter if the
    closing sale price per share of our common stock for a period of
    at least 20 consecutive trading days during the
    30 consecutive trading day period ending on the last day of
    the preceding fiscal quarter is more than 110% of the conversion
    price in effect on that thirtieth day;
• on or before August 1, 2018,
    during the five business-day period following any
    10 consecutive trading-day period in which the daily
    average trading price for the debentures for such ten-day period
    was less than 98% of the average conversion value (as described
    in this offering memorandum) for the debentures during that
    period;
• upon the occurrence of specified
    corporate transactions described below under "Description
    of the Debentures — Conversion Rights;" or
• if we have called the debentures for
    redemption.
The conversion rate will initially equal
    119.4030 shares of our common stock per $1,000 principal
    amount of debentures. This represents an initial conversion
    price of $8.375 per share of common stock. The conversion
    rate (and the conversion price) may be adjusted for certain
    reasons, but will not be adjusted for accrued interest, if any,
    upon any conversion. Upon conversion, holders will not receive
    any cash payment representing accrued interest. Instead, accrued
    interest will be deemed paid by the common stock received by the
    holders on conversion. See "Description of the
    Debentures — Conversion Rights."
Sinking Fund
None.
4
Optional Redemption
We may not redeem the debentures prior to
    August 1, 2008. Thereafter, we may redeem the debentures,
    in whole or in part, at the redemption prices specified
    elsewhere in this prospectus. See "Description of the
    Debentures — Optional Redemption."
Optional Repurchase Right of Holders
A Holder may require us to repurchase for cash
    all or a portion of that holder's debentures on each of
    August 1, 2008, 2013 and 2018 at a repurchase price equal
    to 100% of the principal amount of such holder's debentures
    plus any accrued and unpaid interest to, but excluding, the date
    of repurchase. See "Description of the
    Debentures — Repurchase at Option of
    Holders — Optional Put."
Change of Control Repurchase Right of Holders
A Holder may require us to repurchase for cash
    all or a portion of that holder's debentures upon a change
    of control, in certain circumstances and subject to certain
    conditions. In such case, we will pay a repurchase price equal
    to 100% of the principal amount of the debentures plus accrued
    and unpaid interest to, but excluding, the repurchase date. See
    "Description of the Debentures — Repurchase at
    Option of Holders — Change of Control Put."
Form, Denomination and Registration
The debentures were issued in book-entry form and
    are represented by one or more permanent global certificates
    deposited with a custodian for, and registered in the name of, a
    nominee of the Depository Trust Company, or DTC, in New York,
    New York. Beneficial interests in any such securities are shown
    on, and transfers will be effected only through, records
    maintained by DTC and its direct and indirect participants.
    Except in limited circumstances, no such interest may be
    exchanged for certificated securities. "Description of the
    Debentures — Book-Entry Delivery and Settlement."
Registration Rights
We have filed the registration statement of which
    this prospectus is a part in satisfaction of an obligation to do
    so under a registration rights agreement between us and the
    initial purchasers of the debentures. We have agreed under the
    registration rights agreement to keep the shelf registration
    statement, of which this prospectus is a part, effective until
    the earlier of:
• two years after the last date of
    original issuance of any of the debentures;
• the date when the holders of the
    debentures and the common stock issuable upon conversion of the
    debentures are able to sell all these securities immediately
    pursuant to Rule 144(k) under the Securities Act; and
• the date when all of the debentures
    and the common stock into which the debentures are convertible
    which are owned by purchasers who have completed and delivered a
    selling securityholder notice and questionnaire in a prescribed
    form are registered under the shelf registration statement of
    which this prospectus is a part and sold in accordance with it.
We will be required to pay the holders additional
    amounts if we fail to register the debentures and the common
    stock issuable upon conversion of the debentures within a
    specified time period. See "Description of the
    Debentures — Registration Rights."
5
Listing and trading
The debentures originally sold in private
    placement transactions are eligible for trading in the
    PORTAL
SM
Market of the National Association of
    Securities Dealers, Inc. The debentures sold using this
    prospectus, however, will no longer be eligible for trading in
    the PORTAL
SM
Market. We do not intend to list the
    debentures on any other national securities exchange or
    automated quotation system.
Nasdaq National Market Symbol for our Common Stock
"ALOY"
6
RISK FACTORS THAT MAY AFFECT FUTURE
RESULTS
You should carefully consider and evaluate all
the information included in this prospectus, including the risks
described below, before making an investment decision. Our
business, financial condition and results of operations could be
materially adversely affected by any of these risks. The trading
price of the debentures and our common stock could decline, and
you may lose all or part of your investment. The risks described
below are not the only ones facing our company. Additional risks
not presently known to us or that we currently deem immaterial
may also impair our business operations.
This prospectus also contains forward-looking
statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in
this prospectus. You should carefully consider the following
risk factors, other information included in this prospectus and
information in our periodic reports filed with the Commission.
The material risks and uncertainties described below are related
to this offering. If any of the following risks actually occur,
our business, financial condition or results of operations could
be materially and adversely affected, and you may lose some or
all of your investment.
Risks Related to Our Business
We may not be able to achieve or maintain
    profitability.
Since our inception in January 1996, we have
incurred significant net losses. We have reported positive net
income for only one full fiscal year — our fiscal year
ended January 31, 2003 ("fiscal 2002"). As of
April 30, 2004, we had an accumulated deficit of
approximately $136.4 million.
Our business may not grow in the
    future.
Since our inception, we have rapidly expanded our
business, growing from revenues of $2.0 million for our
fiscal year ended January 31, 1998 to $371.9 million
for our fiscal year ended January 31, 2004 ("fiscal
2003"). Our continued growth will depend to a significant
degree on our ability to increase revenues from our direct
marketing and retail businesses, 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 new media
franchises that we create or acquire. Our ability to implement
our growth strategy will also depend on a number of other
factors, many of which are or may be beyond our control
including (i) the continuing appeal of our media and
marketing properties to Generation Y consumers,
(ii) the continued perception by participating advertisers
and sponsors that we offer an effective marketing channel for
their products and services, (iii) our ability to select
products that appeal to our customer base and to market such
products effectively to our target audience, (iv) our
ability to attract, train and retain qualified employees and
management and (v) our ability to make additional strategic
acquisitions. There can be no assurance that we will be able to
implement our growth strategy successfully.
We may fail to use our Generation Y
    database and our expertise in marketing to Generation Y
    consumers successfully, and we may not be able to maintain the
    quality and size of our database
The effective use of our Generation Y
consumer database and our expertise in marketing to
Generation Y are important components of our business. If
we fail to capitalize on these assets, our business will be less
successful. As individuals in our database age beyond
Generation Y, they may no longer be of significant value to
our business. We must therefore continuously obtain data on new
individuals in the Generation Y demographic in order to
maintain and increase the size and value of our database. If we
fail to obtain sufficient new names and information, our
business could be adversely affected. Moreover, there are other
Generation Y- focused media businesses that possess similar
information about some segments of Generation Y. We compete
for sponsorship and advertising revenues based on the
comprehensive nature of our database and our ability to analyze
and interpret the data in our database. Accordingly, if one or
more of our competitors were to create a database similar to
ours, or if a competitor were able to analyze its data more
effectively than we are able to analyze ours, our competitive
position, and therefore our business, could suffer.
7
Our success depends largely on the value of
    our brands and if the value of our brands were to diminish, our
    business would be adversely affected.
The prominence of our Alloy, dELiA*s, CCS and
Dan's Comp catalogs and websites among our
Generation Y target market, and the prominence of our
Market Place Media, 360 Youth and Private Colleges &
Universities brands and media franchises with advertisers are
key components of our business. If our consumer brands or their
associated merchandise and content lose their appeal to
Generation Y consumers, our business would be adversely
affected. The value of our consumer brands could also be eroded
by misjudgments in merchandise selection or by our failure to
keep our content current with the evolving preferences of our
audience. These events would likely also reduce sponsorship and
advertising sales for our merchandise and publishing businesses
and may also adversely affect our marketing and services
businesses. Moreover, we anticipate that we will continue to
increase the number of Generation Y consumers we reach,
through means 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 in this regard could damage our existing or
future brands. If any of these developments occur, our business
would suffer and we may be required to write-down the carrying
value of our goodwill.
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
calendar 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.
We compete with other retailers for sales
    and locations in our retail store operations.
The Generation Y girl retail apparel
industry is highly competitive, with fashion, quality, price,
location, in-store environment and service being the principal
competitive factors. We compete for retail store sales with
specialty apparel retailers, department stores and certain other
apparel retailers, such as Wet Seal, Hot Topic, bebe, Express,
Forever 21, Gap, H&M, Pacific Sunwear, and Urban Outfitters.
We also compete for favorable site locations and lease terms in
shopping malls. Many of our competitors are large national
chains, which have substantially greater financial, marketing
and other resources than we do. While we believe we compete
effectively for sales and for favorable site locations and lease
terms, competition for prime locations within malls, in
particular, and within other locations is intense and we cannot
assure you that we will be able to obtain new locations or
maintain our existing locations on terms favorable to us, if at
all.
Closing stores or curtailing certain
    operations could result in significant impairments and costs to
    us.
In the fourth quarter of fiscal 2003, we made a
strategic decision to close up to 17 dELiA*s retail stores (6 of
which have been closed as of June 8, 2004) and to
discontinue production of our Girlfriends LA and Old Glory
catalogs due to their poor financial results and their limited
ability to become profitable in the future in a highly
competitive market, and so we could focus on our core direct
marketing brands. In the future, we could decide to close
dELiA*s retail stores (in addition to the 17 stores already
identified for shutdown) or curtail operations that are
producing continuing financial losses. If we do so, we would be
required to write down the carrying value of these impaired
assets to realizable value, a non-cash event that would
negatively impact our earnings and earnings per share. In
addition, if we decide to close any dELiA*s stores before the
expiration of their lease terms, we may incur payments to
landlords to terminate or "buy out" the remaining term
of the lease. We also may incur costs related to the employees
at such stores. These costs would negatively impact our
financial results and cash position.
8
dELiA*s exclusive branding activities could
    lead to increased inventory obsolescence and could harm our
    relations with other vendors.
dELiA*s promotion and sale of dELiA*s branded
products will increase our exposure to risks of inventory
obsolescence and other exposures normally associated with
manufacturers. Accordingly, if a particular style of product
does not achieve widespread consumer acceptance, we may be
required to take significant markdowns, which could have a
material adverse effect on our gross profit margin and other
operating results. Additionally, there can be no assurance that
dELiA*s promotion of its dELiA*s branded products will not
negatively impact its and our relationships with existing
vendors of branded merchandise. Moreover, dELiA*s exclusive
brand development plans may include entry into joint venture
and/or licensing/distribution arrangements, which may limit our
control of these operations.
We depend largely upon a single
    distribution facility.
Following our decision to terminate our
relationship with New Roads and assume fulfillment activities
for our Alloy and CCS units, the distribution functions for our
Alloy, CCS and dELiA*s catalogs and all of our dELiA*s retail
stores are handled from a single, owned facility in Hanover,
Pennsylvania. Any significant interruption in the operation of
this distribution facility due to natural disasters, accidents,
system failures or other unforeseen causes could delay or impair
our ability to distribute merchandise to our customers and
retail stores, which could cause our sales to decline. This
would have a material adverse effect on our operations and
results.
We may be required to recognize impairment
    charges.
Pursuant to generally accepted accounting
principles, 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 in a future
period that could substantially affect our reported earnings in
a period of such change. For instance, during the fourth quarter
of fiscal 2003 we completed our annual impairment review and
recorded a $56.7 million charge to reduce the carrying
value of goodwill and an approximate $3.9 million charge to
reduce the carrying value of indefinite-lived intangible assets.
The combined $60.6 million charge is reflected as a
component of operating income in the accompanying consolidated
statement of operations.
Additionally, pursuant to generally accepted
accounting principles, 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
estimated fair value, if lower. 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 SFAS No. 144, we performed an analysis of
the recoverability of certain long-lived assets during the
fourth quarter of fiscal 2003 and recorded an asset impairment
charge of $1.3 million.
Our strategy contemplates strategic
    acquisitions, and 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. We could
have difficulty in assimilating personnel and operations of the
businesses we have acquired and may have similar problems with
future acquisitions. These difficulties could disrupt our
business, distract our management and employees and increase our
expenses. Furthermore, we may issue
9
additional equity securities in connection with
acquisitions, potentially on terms that could be dilutive to our
existing stockholders.
Our catalog response rates may
    decline.
Catalog response rates usually decline when we
mail additional catalog editions within the same fiscal period.
In addition, as we continue to increase the number of catalogs
distributed or mail our catalogs to a broader group of new
potential customers, we have observed that these new potential
customers respond at lower rates than existing customers have
historically responded. We cross-mail our Alloy catalogs to
dELiA*s' catalog customers, and dELiA*s catalogs to Alloy
catalog customers, which may result in lower response rates for
each. Additionally, response rates for dELiA*s catalogs
historically have declined in geographic regions where it opens
new stores. If and when we open additional new dELiA*s stores,
we expect aggregate catalog response rates to decline further.
These trends in response rates have had and are likely to
continue to have a material adverse effect on our rate of sales
growth and on our profitability and could have a material
adverse effect on our business.
We rely on third-party vendors for
    merchandise.
Our business depends on the ability of
third-party vendors and their subcontractors or suppliers to
provide us with current-season, brand-name apparel and
merchandise at competitive prices, in sufficient quantities,
manufactured in compliance with all applicable laws and of
acceptable quality. We do not have long-term contracts with any
supplier and are not likely to enter into these contracts in the
foreseeable future. In addition, many of the smaller vendors
that we use have limited resources, production capacities and
operating histories. As a result, we are subject to the
following risks, which could have a material adverse effect on
our business:
•
our key vendors may fail or be unable to expand
    with us;
•
we may lose or cease doing business with one or
    more key vendors;
•
our current vendor terms may be changed to
    require increased payments in advance of delivery, and we may
    not be able to fund such payments through our current credit
    facility; or
•
our ability to procure products may be limited.
A portion of dELiA*s merchandise is sourced from
factories in the Far East and Latin America. These goods are,
and will be, subject to existing or potential duties, tariffs or
quotas that may limit the quantity of some types of goods which
may be imported into the United States from countries in those
regions. We will increasingly compete with other companies for
production facilities and import quota capacity. Sourcing more
merchandise abroad will also subject our business to a variety
of other risks generally associated with doing business abroad,
such as political instability, currency and exchange risks and
local political issues. Our future performance will be subject
to these factors, which are beyond our control. Although a
diverse domestic and international market exists for the kinds
of merchandise sourced by us, there can be no assurance that
these factors would not have a material adverse effect on our
results of operations. We believe that alternative sources of
supply would be available in the event of a supply disruption in
one or more regions of the world. However, we do not believe
that, under current circumstances, entering into committed
alternative supply arrangements is warranted, and there can be
no assurance that alternative sources would in fact be available
at any particular time.
We must effectively manage our vendors to
    minimize inventory risk and maintain our margins.
We seek to avoid maintaining high inventory
levels in an effort to limit the risk of outdated merchandise
and inventory write-downs. If we underestimate quantities
demanded by our customers and our vendors cannot restock, then
we may disappoint customers who may then turn to our
competitors. We require many of our vendors to meet minimum
restocking requirements, but if our vendors cannot meet these
requirements and we cannot find alternative vendors, we could be
forced to carry more inventory than we have in the past. Our
risk of inventory write-downs would increase if we were to hold
large inventories of merchandise that prove to be unpopular.
10
Competition may adversely affect our
    business and cause our stock price to decline.
Because of the growing perception that
Generation Y is an attractive demographic for marketers,
the markets in which we operate are competitive. Many of our
existing competitors, as well as potential new competitors in
this market, have longer operating histories, greater brand
recognition, larger customer user bases and significantly
greater financial, technical and marketing resources than we do.
These advantages allow our competitors to spend considerably
more on marketing and may allow them to use their greater
resources more effectively than we can use ours. Accordingly,
these competitors may be better able to take advantage of market
opportunities and be better able to withstand market downturns
than us. If we fail to compete effectively, our business will be
materially and adversely affected and our stock price will
decline.
We rely on third parties for some essential
    business operations, and disruptions or failures in service may
    adversely affect our ability to delivery goods and services to
    our customers.
We currently depend on third parties for
important aspects of our business. 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.
We depend on our key personnel to operate
    our business, and we may not be able to hire enough additional
    management and other personnel to manage our
    growth.
Our performance is substantially dependent on the
continued efforts of our executive officers and other key
employees. The loss of the services of any of our executive
officers or key employees could adversely affect our business.
Additionally, we must continue to attract, retain and motivate
talented management and other highly skilled employees to be
successful. We may be unable to retain our key employees or
attract, assimilate and retain other highly qualified employees
in the future.
We may be required to collect sales tax in
    our direct marketing operations.
At present, we do not collect sales or other
similar taxes in respect of direct shipments of goods to
consumers into most states. However, various states or foreign
countries may seek to impose state sales tax collection
obligations on out-of-state direct mail companies. Additionally,
dELiA*s has been named as a defendant in an action by the
Attorney General of the State of Illinois for failure to collect
sales tax on purchases made online. We can give no assurance
that other states in which dELiA*s maintains a retail store will
not take similar action, and can give no assurance regarding the
results of any such action. A successful assertion by one or
more states that we or one or more of our subsidiaries should
have collected or be collecting sales taxes on the direct sale
of our merchandise could have a material adverse effect on our
business.
We could face liability from, or our
    ability to conduct business could be adversely affected by,
    government and private actions concerning personally
    identifiable data, including privacy.
Our direct marketing and database dependent
businesses are subject to federal and state regulations
regarding maintenance of the confidentiality of the names and
personal information of our customers and the individuals
included in our database. If we do not comply, we could become
subject to liability. While these provisions do not currently
unduly restrict our ability to operate our business, if those
regulations become more restrictive, they could adversely affect
our business. In addition, laws or regulations that could impair
our ability to collect and use user names and other information
on our websites may adversely affect our business. For example,
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
11
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.
We could face liability for information
    displayed in our print publication media or displayed on or
    accessible via our website.
We may be subjected to claims for defamation,
negligence, copyright or trademark infringement or based on
other theories relating to the information we publish in any of
our print publication media and on our websites. These types of
claims have been brought, sometimes successfully, against
marketing and media companies in the past. We may be subject to
liability based on statements made and actions taken as a result
of participation in our chat rooms or as a result of materials
posted by members on bulletin boards on our websites. Based on
links we provide to third-party websites, we could also be
subjected to claims based upon online content we do not control
that is accessible from our websites.
We could face liability for breaches of
    security on the Internet.
To the extent that our activities or the
activities of third-party contractors involve the storage and
transmission of information, such as credit card numbers,
security breaches could disrupt our business, damage our
reputation and expose us to a risk of loss or litigation and
possible liability. We could be liable for claims based on
unauthorized purchases with credit card information,
impersonation or other similar fraud claims. These claims could
result in substantial costs and a diversion of our
management's attention and resources.
Risks Related to the Debentures and our Common
Stock
Stock and Debenture Price
    Volatility
Our stock price has been volatile historically
and may continue to be volatile. The price of our common stock,
and therefore the price of the debentures, may fluctuate
significantly, which may make it difficult for holders to resell
the debentures or the shares of our common stock when desired or
at attractive prices.
The market price for our common stock has been
and may continue to be volatile. For example, during the 52-week
period ended June 25, 2004, the last reported prices of our
common stock on the Nasdaq ranged from a high of $7.95 to a low
of $4.14. We expect our stock price to be subject to
fluctuations as a result of a variety of factors, including
factors beyond our control. These factors include:
•
actual or anticipated variations in our quarterly
    operating results;
•
announcements relating to strategic
    relationships, acquisitions or investments;
•
changes in financial estimates or other
    statements by securities analysts;
•
changes in general economic conditions;
•
terrorist attacks, and the effects of
    war; and
•
changes in the economic performance and/or market
    valuations of other companies in our industry.
Because of this volatility, we may fail to meet
the expectations of our stockholders or of securities analysts
at some time in the future, and the trading prices of our
securities could decline as a result. In addition, the stock
market has experienced significant price and volume fluctuations
that have affected the trading prices of equity securities.
These fluctuations have often been unrelated or disproportionate
to the operating performance of issuing companies. Because the
debentures are convertible into shares of our common stock,
volatility or depressed prices for our common stock could have a
similar effect on the trading price of the debentures. Holders
who receive common stock upon conversion of the debentures also
will be subject to the risk of volatility and depressed prices
of our common stock.
12
The debentures do not contain certain
    restrictive covenants, and there is limited protection in the
    event of a change of control.
The indenture under which the debentures have
been issued do not contain restrictive covenants that would
protect you from several kinds of transactions that may
adversely affect you. In particular, the indenture does not
contain covenants that limit our ability to pay dividends or
make distributions on or redeem our capital stock or limit our
ability to incur additional indebtedness and, therefore, protect
you in the event of a highly leveraged transaction or other
similar transaction. In addition, the requirement that we offer
to repurchase the debentures upon a change of control is limited
to the transactions specified in the definition of a
"change of control" under "Description of
Debentures — Repurchase at Option of
Holders — Change of Control Put." Accordingly, we
could enter into certain transactions, such as acquisitions,
refinancings or a recapitalization, that could affect our
capital structure and the value of our common stock but would
not constitute a change of control.
Our ability to repurchase the debentures
    with cash upon a change of control may be limited.
In certain circumstances involving a change of
control, you may require us to repurchase all or a portion of
your debentures to the extent set forth in the indenture. If a
change in control were to occur, we cannot assure you that, if
required, we would have sufficient cash or other financial
resources at that time or would be able to arrange financing to
pay the repurchase price of the debentures in cash. Our ability
to repurchase the debentures in that event may be limited by
law, the indenture, by the terms of our then existing debt, if
any, and agreements that we may enter into in the future which
may replace, supplement or amend our existing or future debt. If
a change in control occurs at a time when we are prohibited from
repurchasing or redeeming the debentures, we could seek the
consent of lenders to repurchase the debentures or could attempt
to refinance the borrowings that contain this prohibition. If we
do not obtain their consent or refinance these borrowings, we
could remain prohibited from repurchasing the debentures. Our
failure to repurchase the debentures would constitute an event
of default under the indenture under which we issued the
debentures, which might constitute a default under the terms of
our other indebtedness at that time, if any.
There may not be a liquid market for the
    debentures, and you may not be able to sell your debentures at
    attractive prices or at all.
The debentures are a new issue of our securities
for which there is currently no public market. Although the
initial purchasers have advised us that they currently intend to
make a market in the debentures, they are not obligated to do so
and may discontinue their market-making activities at any time
without notice, and their market making activities will be
subject to limits imposed by the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In addition, although the debentures are eligible
for trading in the PORTAL market, such eligibility will cease
upon the effectiveness of the registration statement of which
this prospectus is a part. We cannot predict whether an active
trading market for the debentures will develop or will be
sustained. If an active market for the debentures fails to
develop or be sustained, the trading price of the debentures
could fall. Even if an active trading market were to develop,
the debentures could trade at prices that may be lower than the
initial offering price. The trading price of the debentures will
depend on many factors, including:
•
prevailing interest rates and interest rate
    volatility;
•
the markets for similar securities;
•
our financial condition, results of operations
    and prospects;
•
the publication of earnings estimates or other
    research reports and speculation in the press or investment
    community;
•
the market price of our common stock;
•
changes in our industry and competition; and
•
general market and economic conditions.
13
As a result, we cannot assure you that you will
be able to sell the debentures at attractive prices or at all.
Although we currently have no credit
    ratings, nor do we have any current plans to seek such ratings,
    changes in our credit ratings or the financial and credit
    markets could adversely affect the market price of the
    debentures.
The market price of the debentures will be based
on a number of factors, including:
•
our ratings, if any, with major credit rating
    agencies;
•
the prevailing interest rates being paid by
    companies similar to us; and
•
the overall condition of the financial and credit
    markets.
The condition of the financial and credit markets
and prevailing interest rates have fluctuated in the past and
are likely to fluctuate in the future. Fluctuations in these
factors could have an adverse effect on the price of the
debentures. Currently, we are not rated by any of the major
credit rating agencies and we have no current plans to seek such
ratings. Even if we do obtain such ratings, however, credit
rating agencies continually revise their ratings for companies
that they follow, which would include us. The credit rating
agencies also may evaluate the companies in our industries as a
whole and may change their credit rating for us based on their
overall view of our industries. A negative change in our credit
rating, if it were to occur, could have an adverse effect on the
market price of the debentures.
The debentures are unsecured, and therefore
    are effectively subordinated to any secured debt.
The debentures are not secured by any of our
assets or any of our subsidiaries' assets. As a result, the
debentures are effectively subordinated to any secured debt we
may incur to the extent of the value of the value of the pledged
assets. In any liquidation, dissolution, bankruptcy or other
similar proceeding, the holders of our secured debt may assert
rights against the secured assets in order to receive full
payment of their debt before the assets may be used to pay the
holders of the debentures.
The debentures are effectively subordinated
    to the debt of our subsidiaries.
Our right to receive any assets of any of our
subsidiaries upon their liquidation or reorganization, and
therefore the right of the holders of the debentures to
participate in the distribution of those assets, are effectively
subordinated to the claim of that subsidiary's creditors,
including trade creditors. In addition, even if we were a
creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of
our subsidiaries and any indebtedness of our subsidiaries senior
to that held by us. Our subsidiaries have no obligation to pay
any amounts due on the debentures or to provide us with funds
for our payment obligations, whether by dividends,
distributions, loans or other payments. Furthermore, we are not
limited in or prohibited from transferring cash or other assets
to our subsidiaries from time to time.
Sales of our stock by existing stockholders
    may cause the market price of our common stock to drop
    significantly.
As of June 25, 2004, up to
11,898,762 shares are eligible for resale under
Rule 144(k) of the Securities Act by existing stockholders
subject, in some cases, to contractual sale limits, existing
escrow arrangements and lockup agreements. Any significant sales
of those shares, or the perception that such sales may occur,
could cause the price of our common stock to drop significantly.
We are a defendant in several putative
    class action lawsuits and defending these actions 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. We also have been
named as a defendant in several purported securities class
action lawsuits which have been consolidated by the court. The
allegations in these latter lawsuits include, without
limitation, misrepresentation of our business and financial
condition and results of operations
14
during the period March 16, 2001 through
January 23, 2003. Although we recently reached a tentative
settlement of this consolidated action, we can give no assurance
that the court will approve the terms of the settlement.
Additionally, dELiA*s has been named as a
defendant in a False Claims Act action brought by the Illinois
Attorney General for its alleged failure to collect sales taxes
on direct sales to Illinois residents.
While we believe there is no merit to these
lawsuits and intend to defend them vigorously, 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. For more information see "Legal Proceedings"
on page 47 of this prospectus.
Terrorist attacks and other acts of wider
    armed conflict may have an adverse effect on the United States
    and world economies and may adversely affect our
    business.
Terrorist attacks and other acts of violence or
war, such as those that took place on September 11, 2001,
could have an adverse effect on our business, results of
operations or financial condition. There can be no assurance
that there will not be further terrorist attacks against the
United States or its businesses or interests. Attacks or armed
conflicts that directly impact the Internet or our physical
facilities could significantly affect our business and thereby
impair our ability to achieve our expected results. Further, the
adverse effects that such violent acts and threats of future
attacks could have on the United States and world economies
could similarly have a material adverse effect on our business,
results of operations and financial condition. Finally, further
terrorist acts could cause the United States to enter into a
wider armed conflict, which could further disrupt our operations
and result in a material adverse effect on our business, results
of operations and overall financial condition.
Delaware law and our organizational
    documents and stockholder rights plan may inhibit a
    takeover.
Provisions of Delaware law, our Restated
Certificate of Incorporation or our bylaws 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 has 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 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.
15
YOU SHOULD NOT RELY ON FORWARD-LOOKING
STATEMENTS
BECAUSE THEY ARE INHERENTLY
UNCERTAIN
This prospectus contains forward-looking
statements within the meaning of Section 27A of the Act and
Section 21E of the Exchange Act, particularly statements
regarding market expectations and opportunities, market share
growth and new products and service expectations and
capabilities. These forward-looking statements are just
predictions and involve risks and uncertainties such that actual
results may differ materially.
When used in this prospectus, the words
"anticipate," "believe,"
"estimate," "expect" and "intend"
and similar expressions as they relate to us or our management
are intended to identify such forward-looking statements. Our
actual future results may differ significantly from those stated
in any forward-looking statements. These statements include
statements regarding our ability to: increase revenues, generate
multiple revenue streams, increase visitors to our Web sites and
build customer loyalty; develop our sales and marketing teams;
capitalize on our sales and marketing efforts; capitalize on our
promotions, sponsorship, advertising and other revenue
opportunities; build the Alloy, dELiA*s, CCS and Dan's Comp
brand names, as well as the brand names of our other
subsidiaries, and develop our on-line community; develop
commercial relationships with advertisers and other Web sites;
our Web sites' appeal to marketers and users; meet
anticipated cash needs for working capital and capital
expenditures for the next 24 months; enhance our
infrastructure technology, transaction-processing and automation
capabilities of our Web sites; increase the efficiency of our
supply chain and fulfillment system; expand into international
markets; expand and utilize our name database; identify
desirable products and to continue to limit our risks of our
excess inventory; continue to provide high levels of customer
service and support; manage our vendors to maintain our profit
margins; identify and integrate potential acquisitions and
investments; and contact and successfully market to the
increasing Generation Y audience.
As a result of the foregoing and other factors,
we may experience material fluctuations in future operating
results on a quarterly or annual basis, which could materially
and adversely affect our business, financial condition,
operating results and stock price. We do not intend to update
any of the forward-looking statements in this report to conform
these statements to actual results, unless required by law.
In evaluating this offering, you should carefully
consider the discussion of risks and uncertainties in the
section entitled "Risk Factors" beginning on
page 7 of this prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the ratio of earnings
to fixed charges for us and our consolidated subsidiaries for
the periods indicated.
Years ended January 31,
Three months
ended
2000
2001
2002
2003
2004
April 30, 2004
—(a
)
—(b
)
—(c
)
6.9
—(d
)
—(e
)
These ratios have been calculated by dividing
(i) income before income taxes plus fixed charges (adjusted
for capitalized interest) by (ii) fixed charges. Fixed
charges consist of interest incurred (expensed or capitalized),
preferred stock dividends and accretion of discount and the
portion of rent expense (one-third) on our operating leases
which we believe is deemed representative of interest.
(a) Due to our loss for the fiscal year
ended January 31, 2000 ("fiscal 1999"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $14.634 million to achieve a
coverage of 1:1.
(b) Due to our loss for the fiscal year
ended January 31, 2001 ("fiscal 2000"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $29.689 million to achieve a
coverage of 1:1.
(c) Due to our loss for the fiscal year
ended January 31, 2002 ("fiscal 2001"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $18.378 million to achieve a
coverage of 1:1.
(d) Due to our loss for the fiscal year
ended January 31, 2004 ("fiscal 2003"), the ratio
coverage was less than 1:1. We would have needed to generate
additional earnings of $71.744 million to achieve a
coverage of 1:1.
16
(e) Due to our loss for the three months
ended April 30, 2004, the ratio coverage was less than 1:1.
We would have needed to generate additional earnings of
$9.627 million to achieve a coverage of 1:1.
USE OF PROCEEDS
This prospectus relates to our debentures and/or
shares of our common stock being offered and sold for the
account of the selling securityholders described in this
prospectus. We will not receive any proceeds from the sale of
securities by the selling securityholders in this offering.
COMMON STOCK PRICE RANGE
Our common stock is traded on the Nasdaq National
Market under the symbol "ALOY." The following table
sets forth for the periods indicated the range of intraday high
and low sales prices per share for our common stock on the
Nasdaq National Market.
High
Low
Fiscal 2002 (Ended January 31,
    2003)
First Quarter
$
21.38
$
10.55
Second Quarter
14.76
8.90
Third Quarter
11.50
6.81
Fourth Quarter
14.75
4.15
Fiscal 2003 (Ended January 31,
    2004)
First Quarter
$
6.35
$
4.28
Second Quarter
8.00
5.85
Third Quarter
7.40
4.04
Fourth Quarter
5.69
4.11
Fiscal 2004 (Ending January 31,
    2005)
First Quarter
$
5.83
$
4.56
Second Quarter (through June 30, 2004)
$
6.80
$
4.57
We had 141 shareholders of record as of
June 30, 2004. The pricing information has been derived
from the Nasdaq National Market. As of June 30, 2004, the
last reported sales price for our common stock was
$6.15 per share.
DIVIDEND POLICY
Our present policy is to retain earnings for the
operation and expansion of our business. We have never paid cash
dividends on our common stock and do not anticipate that we will
do so in the foreseeable future. The declaration and payment of
dividends in the future will be determined by our board of
directors and will depend on a number of factors, including our
earnings, capital requirements and overall financial condition.
17
SELECTED FINANCIAL DATA
The following selected financial data are derived
from our consolidated financial statements and notes thereto.
Selected financial data should be read in conjunction with our
Financial Statements and the corresponding Notes,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial
information included elsewhere in this prospectus.
Three Months Ended
Year Ended January 31,
April 30,
2000
2001
2002
2003
2004
2003
2004
(Unaudited)
(In thousands, except share and per share data)
STATEMENTS OF OPERATIONS DATA(1):
Net direct marketing revenues(2)
$
30,952
$
76,736
$
124,052
$
167,572
$
156,821
$
29,971
$
30,640
Retail stores revenues(2)
—
—
—
—
30,103
13,641
Sponsorship and other activities revenues(2)
2,912
14,452
41,570
131,758
185,024
39,473
43,566
Total revenues
33,864
91,188
165,622
299,330
371,948
69,444
87,847
Cost of revenues
13,765
37,757
68,858
145,148
189,379
37,975
46,627
Gross profit
20,099
53,431
96,764
154,182
182,569
31,469
41,220
Operating expenses:
Selling and marketing
30,520
60,814
81,829
108,791
145,715
25,379
36,003
General and administrative
5,423
10,659
13,516
17,240
33,970
4,958
12,116
Amortization of goodwill and other intangible
    assets
332
8,573
18,316
5,554
7,887
1,785
1,522
Impairment of goodwill and other indefinite-lived
    intangible assets
—
—
—
—
60,638
—
—
Impairment of other long-lived assets
—
—
—
—
1,315
—
—
Restructuring charges
—
—
—
2,571
730
380
126
Total operating expenses
36,275
80,046
113,661
134,156
250,255
32,502
49,767
(Loss) income from operations
(16,176
)
(26,615
)
(16,897
)
20,026
(67,686
)
(1,033
)
(8,547
)
Interest and other income (expense), net
1,307
1,119
935
1,700
(2,003
)
287
(686
)
Realized (loss) gain on sale of marketable
    securities and write-off of investments
—
(4,193
)
658
97
(247
)
—
—
Provision (benefit) for income taxes
—
—
296
(1,472
)
5,279
(358
)
10
Net (loss) income
$
(14,869
)
$
(29,689
)
$
(15,600
)
$
23,295
$
(75,215
)
$
(388
)
$
(9,243
)
Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued(3)
—
—
6,745
—
—
—
—
Preferred stock dividends and accretion of
    discount
13
—
3,013
2,100
1,944
453
394
Net (loss) income attributable to common
    stockholders
$
(14,882
)
$
(29,689
)
$
(25,358
)
$
21,195
$
(77,159
)
$
(841
)
$
(9,637
)
Basic net (loss) earnings attributable to common
    stockholders per common share(4)
$
(1.17
)
$
(1.61
)
$
(1.02
)
$
0.55
$
(1.87
)
$
(0.02
)
$
(0.23
)
Weighted average basic common shares outstanding
12,718,318
18,460,042
24,967,678
38,436,256
41,175,046
40,149,100
42,457,030
Diluted net (loss) earnings attributable to
    common stockholders per common share(4)
$
(1.17
)
$
(1.61
)
$
(1.02
)
$
0.55
$
(1.87
)
$
(0.02
)
$
(0.23
)
Weighted average diluted common shares outstanding
12,718,318
18,460,042
24,967,678
40,071,412
41,175,046
40,149,100
42,457,030
(1)
See Note 3 to the consolidated financial
    statements for a description of the effect of our acquisitions
    on the comparability of our selected financial information.
18
(2)
See Note 19 to the consolidated financial
    statements for financial data by reportable segment. In 2002, we
    changed the composition of our reportable segments. As a result,
    the amounts in the 2000 and 2001 segment disclosures have been
    restated to conform to the 2002 composition of reportable
    segments.
(3)
See Note 11 to the consolidated financial
    statements for a description of the beneficial conversion
    features of our Series A and Series B Convertible
    Preferred Stock. The net loss attributable to common
    stockholders reflects the intrinsic value of the realization of
    a contingent beneficial conversion feature of preferred stock
    issued.
(4)
See Note 16 to the consolidated financial
    statements for an explanation of the determination of the number
    of common shares used in computing the amount of basic and
    diluted net loss per common share and net loss attributable to
    common stockholders per common share.
January 31,
2000
2001
2002
2003
2004
April 30, 2004
(Unaudited)
(In thousands)
BALANCE SHEET DATA:
Cash and cash equivalents
$
12,702
$
9,338
$
61,618
$
35,187
$
27,273
$
19,597
Working capital
30,179
25,400
65,430
45,737
32,292
24,601
Total assets
57,668
106,908
310,207
434,600
449,391
445,058
Long-term debt and capital lease obligation, less
    current portion
—
103
358
93
743
3,119
Convertible redeemable preferred stock, net
—
—
15,046
15,550
14,434
14,828
Senior Convertible Debentures Due 2023
—
—
—
—
69,300
69,300
Total stockholders' equity
45,208
88,282
249,734
345,442
281,295
275,396
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial
condition and results of operation should be read in conjunction
with the consolidated financial statements and the related Notes
included elsewhere in this prospectus. Descriptions of all
documents incorporated included as exhibits hereto are qualified
in their entirety by reference to the full text of such
documents so 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 "Risk
Factors That May Affect Future Results" and elsewhere in
this prospectus.
Executive Summary and Outlook
We are a media, marketing services, direct
marketing and retail company targeting Generation Y, the
approximately 60 million boys and girls in the United
States between the ages of 10 and 24. Our business integrates
direct mail catalogs, retail stores, print media, display media
boards, websites, on-campus marketing programs and promotional
events, and features a portfolio of brands that are well known
among Generation Y consumers and advertisers. We reach a
significant portion of Generation Y consumers through our
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, we are
able to offer advertisers targeted access to the youth market.
We sell third-party branded and private label products in key
Generation Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, our assets have enabled us to build a
comprehensive database that includes information about
approximately 27 million Generation Y consumers.
We generate revenue from three principal
sources — direct marketing, retail stores, and
sponsorship and other activities. From our catalogs and
websites, we sell branded products in key Generation Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Our dELiA*s retail
stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. We
generate sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach
Generation Y. Advertisers can reach Generation Y
through integrated marketing programs that include our catalogs,
books, websites, and display media boards, as well as through
promotional events, product sampling, college and high school
newspaper advertising, customer acquisition programs and other
marketing services that we provide.
During the first quarter of fiscal 2004, we made
substantial progress in building a teen-focused merchandising
business with a strong consumer connection through targeted
direct marketing activities, complemented by a retail store
presence. We continued to wind down our Girlfriends LA and Old
Glory catalog businesses, leaving us with dELiA*s and Alloy
focused on the teen girl market and CCS and Dan's Comp
focused on the teen boy market. We have re-located the
fulfillment and call center activities for the Alloy and CCS
catalogs from a third party to efficient Company-owned
facilities. A number of key management changes and additions
have been made in strategic areas to establish the creative,
buying and planning teams necessary to execute the successful
selection and presentation of youth-focused merchandise to gain
target consumer acceptance. Since our acquisition of dELiA*s in
September 2003, we have closed six dELiA*s retail stores as of
June 8, 2004 and continue to evaluate the remaining
underperforming locations to rationalize the store portfolio and
drive improved financial performance in our retail stores
segment. We continue to believe that the synergies we expect to
result from combining our direct marketing operations with those
of dELiA*s, leveraging our combined scale, selling across our
combined databases while controlling overall catalog
circulation, and consolidating fulfillment operations in
dELiA*s' Hanover, Pennsylvania warehouse should begin to be
demonstrated in the second half of fiscal 2004.
We continue to review expansion of our
sponsorship and other businesses. In March of 2004 we acquired
InSite Advertising, Inc. a national out-of-home media company,
to further extend our marketing reach to the 18-34 year old
demographic. In addition, we plan to remain focused in our
previously announced efforts to separate our sponsorship and
merchandising businesses at an opportune time in the foreseeable
future.
20
Critical Accounting Policies and
Estimates
Management's Discussion and Analysis of
Financial Condition and Results of Operations
("MD&A") discusses, among other things, our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate
our estimates and judgments, including those related to product
returns, bad debts, inventories, investments, intangible assets,
income taxes, and contingencies and litigation. We base our
estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
In December 2001, the SEC requested that all
registrants list their three to five most "critical
accounting policies" in MD&A. The SEC indicated that a
"critical accounting policy" is one that is both
important to the portrayal of a company's financial
condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. Our significant accounting policies are
more fully described in Note 2 to our consolidated
financial statements. We believe, however, the following
critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of
our consolidated financial statements.
Revenue Recognition
Direct marketing revenues are recognized at the
time products are shipped to customers, net of any promotional
price discounts and an allowance for sales returns. The
allowance for sales returns is estimated based upon our return
policy, historical experience and evaluation of current sales
and returns trends. Merchandise revenues also include shipping
and handling billed to customers. Shipping and handling costs
are reflected in Selling and Marketing expenses in the
accompanying consolidated statements of operations, and
approximated $11.8 million, $14.7 million and
$12.9 million for fiscal 2001, fiscal 2002 and fiscal 2003,
respectively.
Retail store revenues are recognized at the point
of sale, net of any promotional price discounts and an allowance
for sales returns. The allowance for sales returns is estimated
based upon our return policy, historical experience and
evaluation of current sales and returns trends.
Sponsorship revenues consist primarily of
advertising provided for third parties in our media properties
or via marketing events or programs we execute on the
advertiser's behalf. Revenue under these arrangements is
recognized, net of the commissions and agency fees, when the
underlying advertisement is published, broadcasted 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 as earned pro rata on a monthly basis
over the estimated economic life of the catalog. Billings in
advance of advertising delivery are deferred until earned.
Other revenues consist of book
development/publishing revenue and other service contracts.
Publishing revenues are recognized upon publication of each
property. Service revenues are recognized as the contracted
services are rendered. In our advertising placement activities,
an analysis of our pricing and collection risk, among other
tests, is made to determine whether revenue is reported on a
gross or net basis.
Catalog Costs
Catalog costs consist of catalog production and
mailing costs. Catalog costs are capitalized and charged to
expense over the expected future revenue stream, which is
principally three to four months from the date the catalogs are
mailed.
An estimate of the future sales dollars to be
generated from each individual catalog drop is used in our
catalog costs policy. The estimate of future sales is calculated
for each catalog drop using historical trends for
21
similar catalog drops mailed in prior periods as
well as the overall current sales trend for the catalog brand.
This estimate is compared with the actual sales
generated-to-date for the catalog drop to determine the
percentage of total catalog costs to be classified as prepaid on
our consolidated balance sheets. Prepaid Catalog Costs on the
consolidated balance sheets and Selling and Marketing Expenses
on the consolidated statements of operations and comprehensive
(loss) income are affected by these estimates.
Inventories
Inventories are stated at the lower of cost or
market value. Cost is principally determined by the first-in,
first-out method. We record adjustments to the value of
inventory based upon our forecasted plans to sell our
inventories. The physical condition (e.g., age and quality) of
the inventories is also considered in establishing its
valuation. These adjustments are estimates, which could vary
significantly, either favorably or unfavorably, from the amounts
that we may ultimately realize upon the disposition of
inventories if future economic conditions, trends, or
competitive conditions differ from our estimates and
expectations. These estimates affect the balance of Inventory on
our consolidated balance sheets and Cost of Goods Sold on our
consolidated statements of operations and comprehensive (loss)
income.
Allowance for Doubtful
    Accounts
A portion of our accounts receivable will not be
collected due to customer credit issues and bankruptcies. We
provide reserves for these situations based on the evaluation of
the aging of our accounts receivable portfolio and a
customer-by-customer analysis of our high risk customers. Our
reserves contemplate our historical write-offs on receivables,
specific customer situations, and the economic environments in
which we operate. Estimating an allowance for doubtful accounts
requires significant management judgment and is dependent upon
the overall economic environment and our customer viability.
These estimates affect the balance of Accounts Receivable on our
consolidated balance sheets and Selling and Marketing Expenses
on our consolidated statements of operations and comprehensive
(loss) income.
Goodwill and Intangible
    Assets
Goodwill, which represents the excess of purchase
price over the fair value of net assets acquired, was being
amortized on a straight-line basis over the expected future
periods to be benefited, ranging from three to five years.
Effective February 1, 2002, we adopted Statement of
Financial Accounting Standards ("SFAS")
SFAS No. 142, which eliminates amortization of
goodwill and intangible assets deemed to have indefinite lives,
and requires these assets to be subject to annual impairments
tests. Intangible assets consist of trademarks, mailing lists,
customer relationships, noncompetition agreements, websites and
marketing rights acquired in connection with our business
acquisitions. Trademarks currently have indefinite lives;
however, the other identified intangible assets are amortized
over their expected benefit periods, ranging from two to eight
years.
Impairment of Goodwill and Other
    Indefinite-Lived Intangible Assets
Goodwill impairment is determined using a
two-step process. The first step of the goodwill impairment test
is designed to identify potential impairment by comparing the
fair value of a reporting unit (generally, our reportable
segments) with its net book value (or carrying amount),
including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment
test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test
compares the implied fair value of the reporting unit's
goodwill with the carrying amount of that goodwill. If the
carrying amount of the reporting unit's goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the
fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in
a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit. The
impairment test for other indefinite-lived intangible assets
consists of a comparison of the fair value of the
22
intangible asset with its carrying value. If the
carrying value of the intangible asset exceeds its fair value,
an impairment loss is recognized in an amount equal to that
excess.
Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. Similarly, estimates and assumptions
are used in determining the fair value of other intangible
assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and
also the magnitude of any such charge. To assist in the process
of determining goodwill impairment, we obtain appraisals from an
independent valuation firm. In addition to the use of an
independent valuation firm, we perform internal valuation
analyses and consider other market information that is publicly
available. Estimates of fair value are primarily determined
using discounted cash flows and market comparisons. These
approaches use significant estimates and assumptions including
projected future cash flows (including timing), discount rates
reflecting the risk inherent in future cash flows, perpetual
growth rates, determination of appropriate market comparables
and the determination of whether a premium or discount should be
applied to comparables.
Using these methods, during the fourth quarter of
fiscal 2003 we completed our annual impairment review and
recorded a $56.7 million charge to reduce the carrying
value of goodwill in our direct marketing segment and an
approximate $1.9 million and $2.0 million charge to
reduce the carrying value of other indefinite-lived intangible
assets in our direct marketing segment and sponsorship and other
segment, respectively. The combined $60.6 million charge is
reflected as a component of operating income in the accompanying
consolidated statement of operations.
Considerable management judgment is necessary to
estimate the fair value of our reporting units which may be
impacted by future actions taken by us and our competitors and
the economic environment in which we operate. These estimates
affect the balance of Goodwill and Intangible and Other Assets
on our consolidated balance sheets and Operating Expenses on our
consolidated statements of operations and comprehensive (loss)
income.
Impairment of Long-Lived
    Assets
In accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"), which the
Company adopted in 2002, long-lived assets, such as property,
plant, and equipment, 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. Assets to be
disposed of would be separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets
and liabilities of a disposed group classified as held for sale
would be presented separately in the appropriate asset and
liability sections of the balance sheet.
Pursuant to SFAS No. 144, the Company
performed an analysis of the recoverability of certain
long-lived assets during the fourth quarter of fiscal 2003 and
recorded an asset impairment charge of $1.3 million in the
direct marketing segment. We determined that the carrying
amounts of the non-competition agreement of $144,000 related to
Old Glory, the website of $31,000 related to Old Glory and the
non-competition agreement of $23,000 related to Girlfriends LA
were impaired as we plan to discontinue marketing our Old Glory
and Girlfriends LA brands. Other assets of these businesses,
namely mailing lists, were not deemed impaired as they are and
can be used by other parts of our direct marketing segment. In
addition, the future cash flows related to Dan's Comp could
not fully support the carrying amount of Dan's Comp's
long-lived assets. As a result, an impairment charge related to
the non-competition agreement of $209,000, property and
equipment of $159,000, and mailing list of $749,000 was recorded.
23
Results of Operations and Financial Condition
for Fiscal Years 2001, 2002 and 2003.
Consolidated Results of
    Operations
The following table sets forth our statement of
operations data for the periods indicated, reflected as a
percentage of revenues:
Year Ended January 31,
2002
2003
2004
STATEMENTS OF OPERATIONS DATA
Net direct marketing revenues
74.9
%
56.0
%
42.2
%
Retail stores revenues
—
—
8.1
Sponsorship and other revenues
25.1
44.0
49.7
Total revenues
100.0
100.0
100.0
Cost of revenues
41.6
48.5
50.9
Gross profit
58.4
51.5
49.1
Operating expenses:
Selling and marketing
49.4
36.3
39.2
General and administrative
8.2
5.8
9.1
Amortization of goodwill and other intangible
    assets
11.0
1.9
2.1
Impairment of goodwill and other indefinite-lived
    intangible assets
—
—
16.3
Impairment of long-lived assets
—
—
0.4
Restructuring charges
—
0.8
0.2
Total operating expenses
68.6
44.8
67.3
(Loss) income from operations
(10.2
)
6.7
(18.2
)
Interest income (expense), net
0.6
0.6
(0.5
)
Realized gain (loss) on available-for-sale
    marketable securities and write-off of investments
0.4
—
(0.1
)
Provision (benefit) for income taxes
(0.2
)
0.5
1.4
Net (loss) income
(9.4
)
7.8
(20.2
)
Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued
4.1
—
—
Preferred stock dividends and accretion of
    discount
1.8
0.7
0.5
Net (loss) income attributable to common
    stockholders
(15.3
)%
7.1
%
(20.7
)%
Segment Results of Operations
The tables below present our revenues and
operating income (loss) by segment for each of fiscal 2001,
fiscal 2002, and fiscal 2003.
For Years Ended January 31,
Percent Change
2002
2003
2004
2002 vs 2003
2003 vs 2004
Revenue
Revenue
(In thousands)
Net direct marketing
$
124,052
$
167,572
$
156,821
35.1
%
(6.4
)%
Retail stores
—
—
30,103
—
NM
Sponsorship and other
41,570
131,758
185,024
217
%
40.4
%
Total Revenues
$
165,622
$
299,330
$
371,948
80.7
%
24.3
%
24
For Years Ended January 31,
Percent Change
2002
2003
2004
2002 vs 2003
2003 vs 2004
Operating (Loss) Income
Operating (Loss) Income
(In thousands)
Direct marketing
$
(9,967
)
$
3,108
$
(63,296
)
NM
NM
Retail stores
—
—
(2,574
)
—
NM
Sponsorship and other
4,922
29,210
25,258
493.5
%
(13.5
)%
Corporate
(11,852
)
(12,292
)
(27,074
)
(3.7
)
120.3
Total operating (loss) income
$
(16,897
)
$
20,026
$
(67,686
)
NM
(438.0
)%
NM-Not meaningful
Fiscal 2003 Compared with Fiscal
2002
Revenues
Total Revenues.
Total revenues increased 24.3% to $371.9 million for fiscal
2003 from $299.3 million for fiscal 2002.
Direct Marketing
Revenues.
Direct marketing revenues
decreased 6.4% to $156.8 million from $167.6 million
in fiscal 2002. Revenue from our Alloy, Girlfriends LA, CCS, and
Dan's Comp brands decreased as a result of both a planned
decline in catalog circulation following our acquisition of
dELiA*s and lower customer response rates to the catalogs we did
mail during the second half of the fiscal year due to less
desirable merchandise assortments. We acquired dELiA*s in
September 2003 primarily to improve catalog circulation
productivity by overlaying similar name databases; add a strong,
teen-focused brand; and capitalize on cost-saving opportunities
in combining the businesses. dELiA*s direct marketing revenue
from September 2003 through the end of fiscal 2003 totaled
$29.4 million, which partially offset the decreased sales
in our other brands.
Retail Stores
Revenues.
Retail stores revenues
totaled $30.1 million for fiscal 2003 compared with none
for fiscal 2002. The retail stores revenue was generated solely
from dELiA*s 61 retail stores. We owned no retail stores prior
to our acquisition of dELiA*s in September 2003.
Sponsorship and Other Activities
Revenues.
Sponsorship and other
activities revenues increased 40.4% to $185.0 million in
fiscal 2003 from $131.8 million in fiscal 2002. The
increase was the result of three main factors:
•
the addition of On Campus Marketing's
    ("OCM") revenue from the date of its acquisition in
    May 2003;
•
the twelve months of revenue from Market Place
    Media ("MPM") during fiscal 2003 compared with the
    five and one half months of revenue from MPM during fiscal
    2002; and
•
our expanding client base and our strengthened
    client relationships within our promotional marketing business
    units.
Cost of Revenues
Cost of revenues consists of the cost of the
merchandise sold plus the freight cost to deliver the
merchandise to the warehouse and retail stores, together with
the direct costs attributable to the sponsorship and advertising
programs we provide and the marketing publications we produce.
Our cost of revenues increased 30.5% in fiscal 2003 to
$189.4 million from $145.1 million in fiscal 2002. The
increase in cost of revenues was due primarily to the additional
costs of goods sold by OCM (acquired in May 2003), a full
year's cost of revenues for our MPM ad placement business,
and the cost of merchandise sold by dELiA*s (acquired in
September 2003), offset partially by decreases in cost of goods
sold related to the revenue declines of the Alloy, Girlfriends
LA, CCS and Dan's Comp direct marketing brands.
25
Our gross profit as a percentage of total
revenues decreased to 49.1% in fiscal 2003 from 51.5% in fiscal
2002. This decrease was due primarily to the lower gross margin
profile of our sponsorship and other revenues as an increased
proportion of these revenues were generated from our lower gross
margin advertising placement and event and field marketing
activities. In addition, gross margins within our sponsorship
business units declined due to more competitive market
conditions in fiscal 2003, which required us to reduce our
margins to win sponsorship business contracts. Gross profit
percentages may fluctuate significantly in future periods due
primarily to the changing revenue contributions of our different
sponsorship activities.
Total Operating Expenses
Selling and
Marketing.
Selling and marketing
expenses consist primarily of our catalog production and mailing
costs, our call centers and fulfillment operations expenses,
dELiA*s retail store costs, freight costs to deliver goods to
our merchandise customers, compensation of our sales and
marketing personnel, marketing costs, and information technology
expenses related to the maintenance and marketing of our
websites and support for our advertising sales activities. These
selling and marketing expenses increased 33.9% to
$145.7 million for fiscal 2003 from $108.8 million for
fiscal 2002 primarily due to:
•
the inclusion of dELiA*s selling and marketing
    expenses since September 2003;
•
the inclusion of OCM's selling and marketing
    expenses since its acquisition in May 2003;
•
increased information technology spending to
    support our expanded advertising sales force;
•
increased occupancy expenses of our expanded
    advertising sales and execution staff; and
•
the hiring of additional sales and marketing
    personnel.
As a percentage of total revenues, our selling
and marketing expenses increased to 39.2% for fiscal 2003 from
36.3% for fiscal 2002 due to reduced catalog productivity
(revenues per book circulated) and the high selling and
marketing expenses as a percentage of revenues of dELiA*s
unprofitable retail store operations. Fulfillment expenses,
including credit card processing charges, decreased 10.1% to
$26.3 million for fiscal 2003 from $29.5 million for
fiscal 2002 due to decreased revenues in the direct marketing
segment and dELiA*s more efficient in-house fulfillment
operations. We expect fulfillment expenses to decrease further
in fiscal 2004 as we transition all of our fulfillment
operations for our Alloy and CCS units from New Roads to our
dELiA*s in-house fulfillment operations.
As a percentage of net direct marketing revenues,
fulfillment expenses decreased to 15.4% in fiscal 2003 from
17.6% in fiscal 2002.
General and
Administrative.
General and
administrative expenses consist primarily of salaries and
related costs for our executive, administrative, finance and
management personnel, as well as support services and
professional service fees. These expenses increased 97.0% to
$34.0 million in fiscal 2003 from $17.2 million for
fiscal 2002. The increase in general and administrative expenses
primarily was driven by:
•
the addition of OCM's expenses since the
    acquisition date;
•
the inclusion of dELiA*s expenses since
    September 4, 2003, the acquisition date;
•
an increase in compensation expense for
    additional personnel to handle our growing business;
•
the costs of our Audit Committee's
    investigation into the alleged accounting
    irregularities; and
•
increased expenses associated with growing a
    public company such as professional fees, insurance premiums,
    occupancy costs due to office expansions, and telecommunications
    costs.
Our general and administrative expenses increased
to 9.1% as a percentage of total revenues for fiscal 2003 from
5.8% for fiscal 2002, due primarily to the addition of high
general and administrative expenses as a percentage of revenues
in the acquired dELiA*s business. We expect general and
administrative expenses to grow as we hire additional personnel
and incur additional expenses related to the growth of our
business and our operations.
26
Amortization of Intangible
Assets.
Amortization of intangible
assets was approximately $7.9 million for fiscal 2003 as
compared with $5.6 million for fiscal 2002. In fiscal 2002,
we adopted SFAS No. 142, which eliminates the
amortization of goodwill and indefinite-lived intangible assets
and requires an annual impairment review of such assets. The
increase in intangible asset amortization is due to our
acquisition activities during the last twelve months and the
associated allocation of purchase price to amortizable
identified intangible assets. All of our acquisitions have been
accounted for under the purchase method of accounting.
Goodwill and Other Indefinite-Lived Intangible
Asset Impairment.
Due to the decline
in catalog response rates, operating profit and cash flows were
lower than expected during fiscal 2003. Based on that trend, as
well as the addition and integration of dELiA*s, the projected
cash flows could not support the goodwill within the direct
marketing reporting unit. During the fourth quarter of fiscal
2003, a goodwill impairment charge of $56.7 million was
recognized since the carrying amount of the reporting
unit's goodwill exceeded the implied fair value of the
goodwill. Also, during the fourth quarter of fiscal 2003, an
impairment charge for trademarks of $1.9 million and
$2.0 million was recognized in the direct marketing segment
and the sponsorship and other segment, respectively. In the
direct marketing segment, the trademark impairment charge of
$1.9 million was recognized since the carrying value of the
reporting unit's trademarks was greater than the fair value
of the reporting unit's trademarks. In the sponsorship and
other segment, an impairment charge of $1.0 million was
recorded since the carrying value of the reporting unit's
trademarks was greater than the fair value of the reporting
units trademarks and an additional $1.0 impairment charge was
recognized due to the discontinued use of certain trademarks.
Impairment of Other Long-Lived
Assets.
As a result of triggering
events such as the planned discontinuance of the Old Glory and
Girlfriends LA catalog brands, we performed an analysis pursuant
to SFAS No. 144 of the recoverability of long-lived
assets in the direct marketing segment during the fourth quarter
of fiscal 2003. As a result of this analysis, we recorded an
asset impairment charge of $1.3 million in the direct
marketing segment. Alloy determined that the carrying amounts of
the non-competition agreement of $144,000 related to Old Glory,
the website of $31,000 related to Old Glory and the
non-competition agreement of $23,000 related to Girlfriends LA
were impaired as we plan to discontinue marketing our Old Glory
and Girlfriends LA brands. In addition, the future cash flows
related to Dan's Comp could not fully support the carrying
amount of Dan's Comp's long-lived assets. As a result,
an impairment charge related to the non-competition agreement of
$209,000, property and equipment of $159,000, and mailing list
of $749,000 was recorded.
Restructuring
Charges.
During the first quarter of
fiscal 2003, we made the strategic decision to outsource
substantially all of our fulfillment activities for our
Girlfriends LA unit to New Roads. We determined that we would
not be able to sublease our existing fulfillment facilities due
to real estate market conditions. As a result, and in accordance
with SFAS No. 146 and SFAS No. 144, we
recognized a first quarter charge of approximately $380,000 in
our direct marketing segment, representing the future
contractual lease payments, severance and personnel costs, and
the write-off of related leasehold improvements. During the
third quarter of fiscal 2003, we made the strategic decision to
transfer substantially all of our call center and fulfillment
activities for our Alloy and CCS units from New Roads, a third
party service provider, to our recently acquired distribution
center in Hanover, Pennsylvania and call center in Westerville,
Ohio. As a result, we were required to pay New Roads an exit
fee. We recognized a charge of approximately $351,000 in the
third quarter of 2003 in our direct marketing segment,
representing the contractual exit payment. During the fourth
quarter of fiscal 2002, we wrote off an abandoned facility lease
and equipment no longer required in our business operations when
we determined that we could not exit the lease or sublease the
space. As a result, we took a fourth quarter charge of
$2.6 million. We will continue to review our operations to
determine the necessity of our facilities, equipment and
personnel.
Income (Loss) from Operations
Total Income (Loss) from
Operations.
Our loss from operations
was $67.7 million for fiscal 2003 while our income from
operations was $20.0 million for fiscal 2002. The
transition from operating income to operating loss is primarily
due to the goodwill impairment, the incurrence of operating
losses in our direct marketing business, the loss from the
dELiA*s retail operations, increased corporate expenses, and
increased depreciation and amortization expenses.
27
Income (Loss) from Direct Marketing
Operations.
Our loss from direct
marketing operations was $63.3 million for fiscal 2003
while our income from direct marketing operations was
$3.1 million for fiscal 2002. The transition from direct
marketing operating income to direct marketing operating loss is
primarily a result of goodwill impairment and lower revenues
resulting from reduced catalog circulation and reduced
productivity in the catalogs we did circulate.
Loss from Retail Stores
Operations.
Our loss from retail
stores operations was $2.6 million in fiscal 2003. The loss
was generated from the dELiA*s retail stores acquired in
September 2003.
Income from Sponsorship and Other Activities
Operations.
Our income from
sponsorship and other operations decreased 13.5% to
$25.3 million for fiscal 2003 from $29.2 million for
fiscal 2002 due primarily to the increased amortization of
acquired intangible assets and the impairment of trademarks.
Interest Income (Expense),
    Net
In fiscal 2003, we generated interest income of
$687,000 and $2.7 million of interest expense, primarily
related to the issuance in July and August 2003 of our
5.375% Convertible Senior Debentures due August 1,
2023 (the "Debentures"). In fiscal 2002, we generated
interest income of $1.7 million and had interest expense of
$1,000. The decrease in interest income resulted primarily from
lower cash and cash equivalents and available-for-sale
marketable securities balances during fiscal 2003.
Realized Gain (Loss) on Marketable
    Securities and Write-off of Investments, Net
Net realized gains on the sales of marketable
securities were approximately $66,000 in fiscal 2003. In
addition, we wrote off $313,000 of minority investments in
private companies that either declared bankruptcy or ceased
operations. Realized gains from sales of marketable securities
in fiscal 2002 were approximately $97,000.
Income Tax Benefit (Expense)
In fiscal 2003, we recorded an income tax expense
of $5.3 million due to our decision to establish a
valuation allowance for our net deferred tax asset of
$5.2 million. The valuation allowance was established as a
result of increased uncertainty over the realization of the
deferred tax asset, in part as a result of the acquisition of
dELiA*s. In fiscal 2002, we received an income tax benefit of
$1.5 million due to the release of our valuation reserve in
the fourth quarter due to the anticipated likelihood of future
profits.
Fiscal 2002 Compared with Fiscal
2001
Revenues
Total Revenues.
Total revenues increased 80.7% to $299.3 million for fiscal
2002 from $165.6 million for fiscal 2001.
Merchandise
Revenues.
Net merchandise revenues
increased 35.1% to $167.6 million for fiscal 2002 from
$124.1 million for fiscal 2001. This increase was due
primarily to increased catalog circulation to our enlarged
Generation Y database, which grew as a result of expanded
exposure of our various catalog brands, as well as the
acquisitions of Dan's Comp in September 2001 and
Girlfriends LA in March 2002.
Sponsorship and Other Activities
Revenues.
Sponsorship and other
activities revenues increased 217% to $131.8 million in
fiscal 2002 from $41.6 million in fiscal 2001 primarily due
to the selling efforts of our expanded advertising sales force
and the broadened range of advertising and marketing services we
were able to offer. Our sales force, client base and services
were significantly augmented by the acquisitions of Market Place
Media in July 2002 and 360 Youth and Target Marketing and
Promotions in November 2001.
Cost of Revenues
Our cost of revenues increased 110.6% to
$145.1 million in fiscal 2002 from $68.9 million in
fiscal 2001. This increase was due primarily to the increase in
volume of merchandise sales to our growing customer base,
28
along with the costs associated with our
substantially enlarged newspaper advertising and field marketing
activities.
Our gross profit as a percentage of total
revenues decreased to 51.5% in fiscal 2002 from 58.4% in fiscal
2001. This was due primarily to the lower gross margin profile
of our sponsorship and other revenues as we experienced
significant growth in lower margin activities such as newspaper
advertising, event and field marketing, and sampling programs.
Total Operating Expenses
Selling and
Marketing.
Selling and marketing
expenses increased 33.0% to $108.8 million for fiscal 2002
from $81.8 million for fiscal 2001, due to the increased
costs incurred in marketing, selling and shipping merchandise to
our expanded database in greater volume; the hiring of
additional sales and marketing personnel; the addition of sales
staff associated with acquired media and marketing services
businesses; and increased spending on website technical
maintenance. As a percentage of total revenues, our selling and
marketing expenses decreased to 36.3% for fiscal 2002 from 49.4%
for fiscal 2001. This decrease was due primarily to more
targeted merchandise marketing to our enlarged database,
improved advertising sales force productivity and reduced
general advertising and marketing activity. Fulfillment expenses
including credit card processing charges rose 31.4% to
$29.5 million for fiscal 2002 from $22.4 million for
fiscal 2001 due to the increase in merchandise revenues. As a
percentage of net merchandise revenues, fulfillment expenses
decreased to 17.6% in fiscal 2002 from 18.1% in fiscal 2001 due
mainly to improved labor requirement forecasting and
productivity.
General and
Administrative.
General and
administrative expenses increased 27.4% to $17.2 million
for fiscal 2002 from $13.5 million for fiscal 2001. The
increase was attributable primarily to an increase in
compensation expense for additional personnel to handle our
growing business, together with administrative costs related to
acquired companies and expenses associated with a growing public
company such as increased professional fees, insurance premiums
and public relations costs. As a percentage of total revenues,
our general and administrative expenses decreased to 5.8% for
fiscal 2002 from 8.2% for fiscal 2001 as we spread our overhead
expenses across an enlarged revenue base.
Amortization of Goodwill and Other Intangible
Assets.
Amortization of intangible
assets was approximately $5.6 million for fiscal 2002 as
compared with the amortization of goodwill and other intangible
assets of $18.3 million for fiscal 2001. These costs have
resulted from our acquisition activities, which commenced in
fiscal 1999. All of our acquisitions have been accounted for
under the purchase method of accounting. In fiscal 2002, we
adopted Statement No. 142 which eliminates the amortization
of goodwill and indefinite-lived intangible assets and requires
an annual impairment review of such assets. Accordingly,
amortization expense decreased to $5.6 million in fiscal
2002, as compared with $18.3 million in fiscal 2001, as a
result of adoption of this standard.
Restructuring
Charges.
During the fourth quarter of
fiscal 2002, we wrote off an abandoned facility lease and
equipment no longer required in our business operations when we
determined that we could not exit the lease or sublease the
space. As a result, we took a fourth quarter charge of
$2.6 million.
Income (Loss) from Operations
Total Income (Loss) from
Operations.
Our income from operations
was $20.0 million for fiscal 2002 while our loss from
operations was $16.9 million for fiscal 2001. The
transition from operating loss to operating income reflects
greater efficiency in selling merchandise to our name database
and achieving economies of scale in selling larger advertising
and marketing services packages across a wider range of clients,
together with the elimination of goodwill amortization. The
fiscal 2001 loss from operations was due primarily to goodwill
amortization.
Merchandise Income (Loss) from
Operations.
Our income from
merchandise operations was $3.4 million for fiscal 2002
while our loss from merchandise operations was
$10.0 million for fiscal 2001. The transition from
operating loss to operating income reflects greater productivity
of catalog circulation targeting the more responsive segments of
our enlarged name database and the elimination of goodwill
amortization.
29
Sponsorship and Other Income (Loss) from
Operations.
Our income from
sponsorship and other operations increased 492.0% to
$29.2 million for fiscal 2002 from $4.9 million for
fiscal 2001. This increase resulted from greater economies of
scale in selling a broader range of advertising and marketing
services packages across a wider range of clients, together with
the elimination of goodwill amortization.
Interest Income, Net
Interest income net of expense includes income
from our cash and cash equivalents and from investments and
expenses related to our financing obligations. For fiscal 2002
and fiscal 2001, we generated net interest income of
$1.8 million and $935,000, respectively. This 92.2%
increase resulted primarily from interest earned on the cash
received in connection with private placements of our common
stock in the second half of fiscal 2001 and the follow-on public
offering of our common stock in February 2002.
Realized Gain on Marketable Securities,
    Net
In fiscal 2002, realized gains from sales of
marketable securities were approximately $97,000. In fiscal
2001, we unwound collars we had placed on 600,000 shares of
Liberty Digital (LDIG) common stock and sold
628,000 shares of LDIG, thereby realizing a gain of
$658,000, net of tax. The series of transactions resulted in a
realized gain from sales of marketable securities.
Income Tax Benefit (Expense)
In fiscal 2002, we received an income tax benefit
of $1.5 million due to the release of our valuation reserve
in the fourth quarter due to the anticipated likelihood of
future profits. In fiscal 2001, we were subject to income tax
expense of $296,000 due to taxable operating income generated at
the state level.
Results of Operations for Fiscal Quarters
ended April 30, 2004 and April 30, 2003.
Three Months Ended April 30, 2004
Compared with Three Months Ended April 30, 2003
Consolidated Results of
    Operations
The following table sets forth the statement of
operations data for the periods indicated as a percentage of
revenues:
Three Months
Ended April 30,
2003
2004
Direct marketing revenues
43.2
%
34.9
%
Retail stores revenues
—
15.5
Sponsorship and other revenues
56.8
49.6
Total revenues
100.0
100.0
Cost of revenues
54.7
53.1
Gross profit
45.3
46.9
Operating expenses:
Selling and marketing
36.6
41.0
General and administrative
7.1
13.8
Amortization of intangible assets
2.6
1.7
Restructuring charge
0.5
0.1
Total operating expenses
46.8
56.6
Loss from operations
(1.5
)
(9.7
)
Interest and other income (expense), net
0.4
(0.8
)
Provision for income tax benefit (expense)
0.5
(0.0
)
Net loss
(0.6
)%
(10.5
)%
30
Segment Results of Operations
The tables below present our revenues and
operating income (loss) by segment for each of the three months
ended April 30, 2003 and 2004 (amounts in thousands):
Three Months Ended
April 30,
Percent
Change 2003
2003
2004
vs 2004
Net Revenues:
Direct marketing
$
29,971
$
30,640
2.2
%
Retail stores
—
13,641
NM
Sponsorship and other
39,473
43,566
10.4
Total Net Revenues
$
69,444
$
87,847
26.5
%
Operating Income (Loss):
Direct marketing
$
(1,473
)
$
(1,400
)
5.0
%
Retail stores
—
(2,276
)
NM
Sponsorship and other
5,446
4,131
(24.1
)
Corporate
(5,006
)
(9,002
)
(79.8
)
Total Operating Loss
$
(1,033
)
$
(8,547
)
(727.4
)%
NM — Not meaningful
Net Revenues
Total Net Revenues.
Total net revenues increased 26.5% to $87.8 million in the
three months ended April 30, 2004 from $69.4 million
in the three months ended April 30, 2003.
Direct Marketing
Revenues.
Direct marketing revenues
increased 2.2% from $30.0 million in the three months ended
April 30, 2003 to $30.6 million in the three months
ended April 30, 2004. The increase in direct marketing
revenues for the first quarter of the fiscal year ending
January 31, 2005 ("fiscal 2004") versus the first
quarter of the fiscal year ended January 31, 2004
("fiscal 2003") resulted primarily from revenues
related to our dELiA*s brand which we acquired in September
2003. dELiA*s direct marketing revenue for the first quarter of
fiscal 2004 totaled $10.2 million, which offset the
decreased sales from our Alloy, Girlfriends LA, Old Glory, CCS,
and Dan's Comp brands. We ceased the catalog operations of
our Girlfriends LA and Old Glory brands during the first quarter
of fiscal 2004. The decrease in revenues in our Alloy, CCS and
Dan's Comp brands resulted primarily from a planned decline
in catalog circulation, together with lower sales productivity
in the Alloy title.
Retail Stores
Revenues.
Retail stores revenues
totaled $13.6 million for the three months ended
April 30, 2004. The retail revenue was generated from
dELiA*s 62 retail stores during the quarter.
Sponsorship and Other
Revenues.
Sponsorship and other
revenues increased 10.4% from $39.5 million in the first
quarter of fiscal 2003 to $43.6 million in the first
quarter of fiscal 2004. The increase in sponsorship and other
revenues in the first quarter of fiscal 2004 as compared with
the first quarter of fiscal 2003 was due primarily to the
addition of revenues from the operations of OCM that we acquired
in May 2003.
Cost of Revenues
Cost of revenues consists of the cost of the
merchandise sold plus the freight cost to deliver the
merchandise to the warehouse and retail stores, together with
the direct costs attributable to the sponsorship and advertising
programs we provide, and the marketing publications we produce.
Our total cost of revenues increased 22.8% from
$38.0 million in the three months ended April 30, 2003
to $46.6 million in the three months ended April 30,
2004. The increase in cost of revenues in the first quarter of
fiscal 2004 as compared with the first quarter of fiscal
31
2003 was due primarily to the additional costs of
goods sold from OCM (acquired in May 2003) and cost of
merchandise sold from dELiA*s (acquired in September 2003),
offset partially by decreases in cost of goods sold related to
the revenue declines of the Alloy, CCS and Dan's Comp
direct marketing brands and the wind-down of our Girlfriends LA
and Old Glory brands.
Our gross profit as a percentage of total
revenues increased from 45.3% in the three months ended
April 30, 2003 to 46.9% in the three months ended
April 30, 2004. This increase was due primarily to the
increased percentage of direct marketing and retail store
segment revenues of total revenues in the first quarter of
fiscal 2004. Gross profit percentages may fluctuate
significantly in future periods due primarily to the changing
revenue contributions of our different operating segments and
the changing revenue contributions of our different sponsorship
segment activities.
Total Operating Expenses
Selling and
Marketing.
Selling and marketing
expenses consist primarily of our catalog production and mailing
costs; our call centers and fulfillment operations expenses;
dELiA*s retail store costs; freight costs to deliver goods to
our merchandise customers; compensation of our sales and
marketing personnel; marketing costs; and information technology
expenses related to the maintenance and marketing of our
websites and support for our advertising sales activities. These
selling and marketing expenses increased from $25.4 million
in the three months ended April 30, 2003 to
$36.0 million in the three months ended April 30, 2004
due primarily to:
•
the inclusion of dELiA*s selling and marketing
    expenses (acquired in September 2003); and
•
the inclusion of OCM's selling and marketing
    expenses (acquired in May 2003).
As a percentage of total revenues, our selling
and marketing expenses increased from 36.6% in the first quarter
of fiscal 2003 to 41.0% in the first quarter of fiscal 2004, due
primarily to reduced catalog overall productivity (revenues per
book circulated) and the high selling and marketing expenses as
a percentage of revenues for dELiA*s unprofitable retail store
operations.
General and
Administrative.
General and
administrative expenses consist primarily of salaries and
related costs for our executive, administrative, finance and
management personnel, as well as support services and
professional service fees. These expenses increased from
$5.0 million in the three months ended April 30, 2003
to $12.1 million in the three months ended April 30,
2004. The increase in general and administrative expenses
primarily was driven by:
•
the addition of OCM's expenses;
•
the inclusion of dELiA*s expenses; and
•
increased expenses associated with growing a
    public company such as professional fees, insurance premiums,
    occupancy costs due to office expansions, and telecommunications
    costs.
Our general and administrative expenses as a
percentage of total revenues increased from 7.1% in the first
quarter of fiscal 2003 to 13.8% in the first quarter of fiscal
2004, due primarily to the addition of high general and
administrative expenses as a percentage of revenues in the
acquired dELiA*s business and senior management hiring in our
direct marketing and retail store segment, along with increased
professional services costs due to outstanding litigation and
increased audit fees.
Amortization of Intangible
Assets.
Amortization of intangible
assets was approximately $1.5 million in the three months
ended April 30, 2004 as compared with $1.8 million in
the three months ended April 30, 2003. The decrease in
amortization expense resulted from certain identified intangible
assets becoming fully amortized during the fourth quarter of
fiscal 2003 and the impairment of certain identified intangible
assets during the fourth quarter of fiscal 2003, offset
partially by our acquisition activities during the last twelve
months and the associated allocation of purchase price to
identified intangible assets. All of our acquisitions have been
accounted for under the purchase method of accounting.
Restructuring
Charge.
During the first quarter of
fiscal 2003, we made the strategic decision to outsource
substantially all of our fulfillment activities for our
Girlfriends LA unit to New Roads. We determined that we
32
would not be able to sublease our existing
fulfillment facilities due to the real estate market conditions.
As a result, and in accordance with SFAS No. 146 and
SFAS No. 144, we recognized a first quarter charge of
approximately $380,000 in our direct marketing segment,
representing the future contractual lease payments, severance
and personnel costs, and the write-off of related leasehold
improvements. During the first quarter of fiscal 2004, we made
the decision to relocate the MPM business from
Santa Barbara, California to our principal office in New
York, New York and terminated several MPM employees. As a
result, and in accordance with SFAS 146, we recognized a
restructuring charge in the sponsorship and other segment of
approximately $126,000 in the first quarter of fiscal 2004. The
$126,000 restructuring charge is comprised of severance costs.
The MPM business is expected to relocate to the New York office
by the end of the second quarter of fiscal 2004. Additional
charges representing additional severance costs, future
contractual lease payments and the write-off of related
leasehold improvements will be recognized during the second
quarter of fiscal 2004 when the MPM business is physically
relocated from Santa Barbara to New York. We will continue
to review our operations to determine the necessity of our
facilities, equipment, and personnel.
Loss from Operations
Total Loss from
Operations.
Our loss from operations
was $8.5 million in the first quarter of fiscal 2004 while
our loss from operations was $1.0 million in the first
quarter of fiscal 2003. The increase in operating loss is
primarily due to the increased operating loss from the dELiA*s
retail operations that we acquired in September 2003, decreased
operating income from our sponsorship and other operations, and
increased corporate expenses.
Direct Marketing Loss from
Operations.
Our loss from direct
marketing operations was $1.4 million in the first quarter
of fiscal 2004 while our loss from direct marketing operations
was $1.5 million in the first quarter of fiscal 2003.
Excluding the restructuring charge related to Girlfriends LA in
the first quarter of fiscal 2003, the direct marketing operating
loss increased in the first quarter of fiscal 2004 primarily as
a result of the costs of transitioning and integrating our
previously outsourced fulfillment and call center activities to
our Hanover, Pennsylvania facilities.
Retail Stores Loss from
Operations.
Our loss from retail
stores operations was $2.3 million in the first quarter of
fiscal 2004. The loss was generated from the dELiA*s retail
stores.
Sponsorship and Other Income from
Operations.
Our income from
sponsorship and other operations decreased 24.1% to
$4.1 million in the first quarter of fiscal 2004 from
$5.4 million in the first quarter of fiscal 2003. This
decrease resulted primarily due to lower revenues and margins in
our event marketing activities, together with OCM's
seasonal operating loss, offset by stronger advertising
placement income resultant from higher gross margins.
Interest and Other Income (Expense),
    Net
Interest and other income, net of expense,
includes income from our cash equivalents and from
available-for-sale marketable securities and expenses related to
our financing obligations. In the three months ended
April 30, 2004, we generated interest income of $120,000
and interest expense of $1.2 million primarily related to
the issuance in July and August 2003 of our Debentures, as
compared with interest income of $291,000 and interest expense
of $4,000 in the three months ended April 30, 2003. During
the first quarter of fiscal 2004, we recognized other income of
$388,000 related to a working capital adjustment resulting from
the MPM acquisition. The decrease in interest income resulted
primarily from lower interest rates and the lower cash and cash
equivalents and available-for-sale marketable securities
balances during the quarter ended April 30, 2004 as
compared with the quarter ended April 30, 2003.
Income Tax Benefit (Expense)
In the three months ended April 30, 2004 we
recorded an income tax expense of $10,000 due to taxable
operating income generated at the state level. In the three
months ended April 30, 2003 we recorded an income tax
benefit of $358,000 due to the taxable loss generated in the
quarter. Included in the tax benefit was a refund of $36,000 for
an amended prior year tax return. At April 30, 2003 and
prior to our acquisition of dELiA*s, we had
33
expected the loss generated in the first quarter
to be offset by taxable income during the second half of fiscal
2003.
Liquidity and Capital Resources
We have financed our operations to date primarily
through the sale of equity and debt securities as we generated
negative cash flow from operations prior to fiscal 2002 and for
the three months ended April 30, 2004. At January 31,
2004, we had approximately $46.3 million of unrestricted
cash, cash equivalents and short-term investments, along with
$5.6 million of marketable securities classified as
non-current assets due to their stated maturities and our
intention to hold them for more than one year. At April 30,
2004, we had approximately $35.3 million of unrestricted
cash, cash equivalents and short-term investments along with
$4.2 million of marketable securities classified as
non-current assets due to their stated maturities and our
intention to hold them for more than one year. Our principal
commitments at April 30, 2004 consisted of the Debentures,
accounts payable, bank loans, accrued expenses and obligations
under operating and capital leases.
Net cash provided by operating activities was
$12.0 million in fiscal 2003 compared with
$24.1 million in fiscal 2002. The decline was primarily due
to the transition to a net loss in fiscal 2003 as opposed to net
income in fiscal 2002, which resulted from the decline in direct
marketing segment financial performance, the addition of dELiA*s
unprofitable retail stores, and increased corporate expenses,
partially offset by the non-cash impact of the goodwill
impairment, a higher level of depreciation and amortization and
a smaller increase in operating assets net of operating
liabilities. Net cash used in operating activities was
$8.7 million in the first three months of fiscal 2004
compared with net cash used in operating activities of
$10.5 million in the first three months of fiscal 2003. The
reduced cash usage was primarily due to tighter working capital
management reflected by a smaller increase in operating assets
net of operating liabilities, partially offset by the increased
net loss in fiscal 2004 as compared with the net loss in fiscal
2003.
Cash used in investing activities was
$72.0 million in fiscal 2003 consisting of the net
application of $1.6 million of cash to acquire
available-for-sale marketable securities, $66.7 million to
acquire businesses, and $3.8 million for capital
expenditures. Cash used in investing activities was
$106.9 million in fiscal 2002 consisting of the net
application of $7.9 million of cash to acquire
available-for-sale marketable securities, $89.6 million to
acquire businesses, $4.3 million for capital expenditures
and $4.9 million to acquire databases and marketing rights.
Cash used in investing activities was approximately
$2.0 million in the three months of fiscal 2004, due
primarily to the usage of $5.1 million to acquire
businesses and $1.6 million for capital expenditures,
offset by the net cash proceeds of $4.7 million from our
sales, purchases and maturities of available-for-sale marketable
securities. In the first three months of fiscal 2003,
$16.5 million of cash was provided by investing activities,
due primarily to net cash proceeds of $17.6 million from
our sales, purchases and maturities of available-for-sale
marketable securities offset by $1.0 million for capital
expenditures.
Net cash provided by financing activities was
$52.1 million in fiscal 2003 due primarily to net proceeds
of $66.8 million received from the issuance of the
Debentures in the private placement market, offset primarily by
the repurchase of 600,000 shares of our common stock for
$3.0 million and the net repayment of $11.9 million on
credit facilities assumed in the OCM and dELiA*s acquisitions.
Net cash provided by financing activities was $56.4 million
in fiscal 2002 due primarily to the gross proceeds from our
public equity offering in February 2002. In fiscal 2003 and
2002, we recorded non-cash charges related to Series B
Convertible Preferred Stock accretion and dividends of
$1.9 million and $2.1 million, respectively. Net cash
provided by financing activities was $3.0 million in the
three months ended April 30, 2004 compared with
$2.8 million of cash used in financing activities in the
three months ended April 30, 2003. The cash provided by
financing activities in the three months
34
ended April 30, 2004 was due primarily to
$3.1 million of net borrowings under our line of credit
agreement. In the three months ended April 30, 2003, net
cash used in financing activities of $2.8 million resulted
primarily from the repurchase of 600,000 shares of our
common stock for approximately $3.0 million.
Our liquidity position as of April 30, 2004
consisted of $35.3 million of unrestricted cash, cash
equivalents and short-term investments. We expect our liquidity
position to meet our anticipated cash needs for working capital
and capital expenditures, for at least the next 24 months,
excluding the impact of any potential, as yet unannounced
acquisitions. If cash generated from our operations is
insufficient to satisfy our cash needs, we may be required to
raise additional capital. If we raise additional funds through
the issuance of equity securities, our stockholders may
experience significant dilution. Furthermore, additional
financing may not be available when we need it or, if available,
financing may not be on terms favorable to us or to our
stockholders. If financing is not available when required or is
not available on acceptable terms, we may be unable to develop
or enhance our products or services. In addition, we may be
unable to take advantage of business opportunities or respond to
competitive pressures. Any of these events could have a material
and adverse effect on our business, results of operations and
financial condition.
On January 29, 2003, we adopted a stock
repurchase program, authorizing the repurchase of up to
$10 million of our common stock from time to time in the
open market at prevailing market prices or in privately
negotiated transactions. As of January 31, 2004, we had
utilized $3.0 million of the authorized amount of this
program. It is anticipated that additional share repurchases
under this program, if any, will be funded by available working
capital.
Contractual Obligations
The following table presents our significant
contractual obligations as of January 31, 2004 (in
thousands):
Payments Due By Period
Less than
More than
Contractual Obligations
Total
1 Year
1-3 Years
3-5 Years
5 Years
Senior Convertible Debentures due 2023(a)
$
69,300
—
—
—
$
69,300
Mortgage Loan Agreement
2,914
2,914
—
—
—
Operating Lease Obligations
80,653
13,879
24,726
19,564
22,484
Capital Lease Obligations (including interest)
347
257
67
23
—
Purchase Obligations(b)
20,111
19,015
1,077
19
—
Future Non-Compete Payments
2,402
240
620
1,542
—
Total
$
175,727
$
36,305
$
26,490
$
21,148
$
91,784
(a)
The Senior Convertible Debentures due 2023 may be
    redeemed after August 1, 2008 at the option of the holder.
(b)
Our purchase obligations are primarily related to
    inventory commitments and service agreements.
We have long-term noncancelable operating lease
commitments for retail stores, office space, warehouse
facilities, and equipment. We also have long-term noncancelable
capital lease commitments for equipment.
35
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, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources.
Guarantees
We have no significant financial guarantees.
Effect of New Accounting Standards
We have described the impact anticipated from the
adoption of certain new accounting pronouncements effective in
fiscal 2003 in Note 2 to the consolidated financial
statements.
Inflation
In general, our costs are affected by inflation
and we may experience the effects of inflation in future
periods. We believe, however, that such effects have not been
material to us during the past.
Forward-Looking Statements
Statements in this prospectus 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 prospectus, 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 "Risk Factors That May Affect Future
Results" on page      of this
prospectus.
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
36
OUR BUSINESS
Overview
We are a media, marketing services, direct
marketing and retail company targeting Generation Y, the
approximately 60 million boys and girls in the United
States between the ages of 10 and 24. Our business integrates
direct mail catalogs, retail stores, print media, display media
boards, websites, on-campus marketing programs and promotional
events, and features a portfolio of brands that are well known
among Generation Y consumers and advertisers. We reach a
significant portion of Generation Y consumers through our
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, we are
able to offer advertisers targeted access to the youth market.
We sell third-party branded and private label products in key
Generation Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, our assets have enabled us to build a
comprehensive database that includes information about
approximately 26 million Generation Y consumers.
We believe we are the only
Generation Y-focused media company that combines
significant marketing reach with a comprehensive consumer
database, providing us with a deep understanding of the youth
market. This market is large. According to the United States
Census Bureau, more than 35% of the United States population is
under the age of 24. According to studies by Harris Interactive,
the projected annual income for Generation Y is about
$211 billion and annual spending is about $172 billion
per year — about $3,000 in spending per person. Harris
Interactive studies have also shown that the college market is
large and influential, with approximately 15.8 million
college students in the United States who control about
$46.5 billion annually in discretionary spending.
We were incorporated in January 1996, launched
our Alloy website in August 1996 and began generating meaningful
revenues in August 1997 following the distribution of our first
Alloy catalog. Since then, we have grown rapidly, both
organically and through the completion of strategic
acquisitions. Our consolidated revenues have increased from
$2.0 million for the fiscal year ended January 31,
1997 to $371.9 million for the fiscal year ended
January 31, 2004.
We believe our business should continue to grow
as we capitalize on the following key assets:
•
Broad Access to
    Generation Y.
Our collection of
    media, marketing and retail assets enables us to reach a
    significant portion of the over 60 million
    Generation Y consumers by:
•
circulating over 65 million direct mail
    catalogs annually;
•
producing college guides, books and recruitment
    publications;
•
owning and operating 57 dELiA*s retail stores,
    including six outlet stores, in 22 states;
•
owning and operating over 30,000 display media
    boards on college and high school campuses throughout the United
    States;
•
placing advertising in over 2,500 college and
    high school newspapers; and
•
interacting with our registered online user base
    that, as of January 31, 2004, comprised of almost
    5 million individuals who subscribed to our targeted e-mail
    magazines.
•
Comprehensive Generation Y
    Database.
As of May 31, 2004, our
    database contained information about approximately
    27 million individuals, including approximately
    8.4 million individuals who have purchased products
    directly from us. In addition to names and addresses, our
    database contains a variety of valuable information that may
    include age, purchasing history, stated interests, online
    behavior, educational level and socioeconomic factors. We
    continually refresh and grow our database with information we
    gather through our media properties, marketing services, retail
    stores and direct marketing programs, as well as through
    acquisitions of companies that have database information. We
    analyze this data in detail, which we believe enables us to not
    only improve response rates from our own direct sales efforts
    but also to offer advertisers cost-effective ways of reaching
    highly targeted audiences.
37
•
Established Media and Marketing
    Franchises.
Our principal media and
    marketing franchises are well known by Generation Y
    consumers and by advertisers that target this market. Alloy,
    dELiA*s, CCS and Dan's Comp are recognized brands among
    Generation Y consumers. Each of these multi-media brands
    targets a specific segment of the youth market through retail
    stores, catalogs and/or websites. For advertisers, our portfolio
    of marketing businesses includes established marketers that
    target the youth market such as Market Place Media, 360 Youth,
    Alloy Marketing and Promotions, On Campus Marketing and Private
    Colleges & Universities, which collectively have over
    60 years of experience in creating and implementing
    advertising and marketing programs targeting the youth market.
•
Strong Relationship with Advertisers and
    Marketing Partners.
We provide
    advertisers and marketing partners with highly targeted,
    measurable and effective means to reach the Generation Y
    audience. Our seasoned advertising sales force of over 100
    professionals has established strong relationships with youth
    marketers. During fiscal 2003, we had over 1,800 advertising
    clients, including AT&T Wireless, Citibank, Hershey,
    L'Oreal, New Balance, Paramount Pictures,
    Procter & Gamble and Verizon Wireless.
We generate revenue from three reportable
segments:
•
DIRECT MARKETING (formerly
    "MERCHANDISING")
•
RETAIL STORES
•
SPONSORSHIP AND OTHER ACTIVITIES
Direct Marketing Segment
Effective September 2003, and following our
acquisition of dELiA*s Corp., we changed the name of our catalog
and online commerce business from the "merchandising
segment" to the "direct marketing segment." Our
direct marketing segment derives revenues from sales of
merchandise to consumers through our catalogs and websites. Net
merchandise revenues in our direct marketing segment for fiscal
2001, fiscal 2002 and fiscal 2003 were $124.1 million,
$167.6 million and $156.8 million, respectively.
Each of our catalogs and associated websites
targets a particular segment of Generation Y and offers
products of interest to its audience.
Alloy
—
Our Alloy catalog ranges in length from 48 to 84 pages and
offers for sale an assortment of apparel, accessories, footwear
and room furnishings targeting Generation Y girls. During
fiscal 2003, we mailed 15 versions of the Alloy catalog and
allocated up to nine pages per catalog to our advertising
clients and marketing partners. Our flagship website
(WWW.ALLOY.COM) provides a broad range of merchandise,
community, and content for Generation Y girls. Through this
website, we offer the apparel items, outerwear, accessories,
footwear, cosmetics and room furnishings that are available in
our Alloy catalogs, as well as additional products and special
offers.
dELiA*s
—
Our dELiA*s catalog, which targets Generation Y girls and
offers a variety of apparel, accessories and home furnishings,
ranges from 48 to 112 pages in length. We acquired dELiA*s in
September 2003. From September 6, 2003 through
January 31, 2004, six versions of the dELiA*s catalog were
mailed. Our dELiA*s website (WWW.dELiAs.COM) is designed to
complement the catalog and offers the same accessories, apparel
items and footwear as are offered in the catalog, as well as
additional products and special offers.
CCS
— Our
CCS catalog, which targets Generation Y boys, ranges from
40 to 104 pages in length and offers an assortment of
action sports equipment, such as skateboards and snowboards, and
related apparel, accessories and footwear. We mailed
10 versions of the CCS catalog during fiscal 2003 and
allocated up to eight pages per catalog to our advertising
clients and marketing partners. Our CCS website (WWW.CCS.COM)
features products, content and community for action sports
enthusiasts. We offer the same action sports equipment and
related accessories, apparel items and footwear that are found
in our CCS catalogs, as well as additional products and special
offers.
Dan's
Comp
— Our Dan's Comp
catalog, which also targets Generation Y boys, ranges from
36 to 108 pages, focuses on the BMX bike market and offers
BMX bikes, parts and safety equipment, as well as related
38
apparel, accessories and footwear. We mailed
eight versions of the Dan's Comp catalog during fiscal
2003. Our Dan's Comp website (WWW.DANSCOMP.COM) is a
popular online destination for BMX bike enthusiasts through
which we offer consumers the same BMX bike sports equipment and
related accessories, apparel items and footwear that we offer in
our Dan's Comp catalogs, as well as additional products and
special offers.
Direct Marketing Strategy
Our direct marketing strategy is designed to
minimize our exposure to trend risk and facilitate speed to
market and product assortment flexibility. Our primary objective
is to reflect, not lead, Generation Y styles and tastes. We
select merchandise from what we believe are quality designers
and producers, allowing us to stay current with the tastes of
the market rather than to predict future trends. Our buyers and
merchandisers work closely with our many vendors to tailor
products to our specifications. Through this strategy, we
believe we are able to minimize design risk and make final
product selections only two to three months before the products
are brought to market, not the typical six to nine months
required by many apparel retailers.
We have designed our operational processes to
support our direct marketing strategy. Our buyers have years of
experience working with Generation Y retail and direct
marketing companies. We believe our staff has a proven ability
to identify desirable products and ensure that our vendors meet
specific guidelines regarding product quality and production
time. At present, we primarily use domestic vendors who have the
ability to produce and ship products within two to eight weeks.
This speed to market gives us flexibility to incorporate the
latest trends into our product mix and to better serve the
evolving tastes of Generation Y.
Our direct marketing strategy also enables us to
manage our inventory levels efficiently. We attempt to limit the
size of our initial merchandise orders and rely on quick
re-order ability. Because we do not make aggressive initial
orders, we believe we are able to limit our risk of excess
inventory. Additionally, we use our websites to offer special
product prices and periodically mail various sales catalogs to
our customers to sell slower moving inventory, complementing the
selling capacity of our dELiA*s outlet stores.
Because Alloy, dELiA*s, CCS and Dan's Comp
are recognized and popular brands among Generation Y
consumers, our websites and catalogs are a valuable marketing
tool for our vendors. As a result, our vendors often grant us
online and catalog exclusivity for products we select. We
believe this exclusivity makes the merchandise in the Alloy,
dELiA*s, CCS and Dan's Comp catalogs more attractive to our
target audience and protects us from direct price comparisons.
Our merchandise selection includes products from more than 500
vendors. dELiA*s primarily carries its own branded merchandise
as well as merchandise from well known names including Paul
Frank, Billabong, and Puma. Brands currently offered through
Alloy include nationally recognized names such as Vans, Roxy/
Quiksilver and Skechers, as well as smaller, niche labels,
including Paris Blues and Free People. CCS carries merchandise
and equipment from major action sports brands such as World
Industries, Osiris and Birdhouse. Dan's Comp merchandise
includes a complete line of BMX-style bicycles, parts, safety
equipment, apparel and accessories from brands including Huffy,
Hoffman and Free Agent bikes, and Etnies, Split and DC apparel
and footwear.
Ordering, Fulfillment and Customer
    Service
In order to take, fulfill and ship orders for our
Alloy, CCS, Old Glory and Girlfriends LA merchandise businesses,
we have used a full-service, integrated call center and
fulfillment center staffed with trained personnel and owned and
operated by NewRoads, Inc. ("NewRoads"), a specialized
third-party fulfillment services company. In Martinsville,
Virginia, NewRoads has over 400,000 square feet of
warehouse space to support Alloy's activity, and a 250-seat
call center to handle both Alloy and Girlfriends LA inquiries.
In addition, NewRoads has over 300,000 square feet of
warehouse space in Portland, Tennessee to support CCS and
Girlfriends LA warehouse and fulfillment activities, and a
150-seat call center in San Luis Obispo, California to
handle CCS inquiries. We monitored our NewRoads relationship
closely, in part by having several of our employees working on
site at each NewRoads facility.
We process Dan's Comp orders through our own
47-seat call center and warehouse facility located in Mt.
Vernon, Indiana. We staff our Dan's Comp call center and
warehouse with our own employees. The Dan's Comp
fulfillment center has approximately 29,000 square feet of
warehouse space. We initially processed Old Glory
39
orders through a 30-seat call center and
warehouse facility located in Westbrook, Connecticut which was
owned and operated by the former owners of Old Glory. In April
2003, we transferred the Old Glory call center and warehouse
operations to NewRoads, which handles the Old Glory call center
functions at its San Luis Obispo, California location and
the Old Glory warehousing activities from its Portland,
Tennessee location.
We process dELiA*s customer orders and retail
stock shipments through a warehouse and fulfillment center in
Hanover, Pennsylvania. Our 200-seat call center is staffed with
personnel in Westerville, Ohio. Following our acquisition of
dELiA*s, we shipped an average of 23,000 units to retail
stores and 5,000 customer packages per day from this center. Our
busiest shipping days for dELiA*s involved shipping
82,000 units to retail stores and 16,000 customer packages
for the direct marketing segment. We use an integrated picking,
packing and shipping system with a live connection to our direct
order entry system. The system monitors the in-stock status of
each item ordered, processes orders and generates warehouse
selection tickets and packing slips for order and fulfillment
operations that we acquired in connection with our acquisition
of dELiA*s.
During the third quarter of fiscal 2003, we made
the strategic decision to transfer substantially all of our
fulfillment activities for our Alloy and CCS units to our
recently acquired distribution center in Hanover, Pennsylvania
during fiscal 2004. We notified New Roads that we would be
exiting the New Roads' facilities during the first half of
fiscal 2004. As of April 2004, we transferred the Alloy call
center operations to our Westerville, Ohio location and began to
fulfill and ship Alloy orders from our Hanover, Pennsylvania
warehouse. In May 2004, we transferred order-taking,
fulfillment, and shipments related to our CCS direct marketing
brand to our call center in Westerville, Ohio and our warehouse
in Hanover, Pennsylvania.
We believe that high levels of customer service
and support are critical to the value of our services and to
retaining and expanding our customer base. We routinely monitor
customer service calls at each of our call centers for quality
assurance purposes. Additionally, we review our call and
fulfillment centers' policies and distribution procedures
on a regular basis. A majority of our catalog and Internet
orders are shipped within 48 hours of credit approval. In
cases in which the order is placed using another person's
credit card and exceeds a specified threshold, the order is
shipped only after we have received confirmation from the
cardholder. Customers generally receive orders within three to
ten business days after shipping. Our shipments are generally
carried to customers by United Parcel Service and the United
States Postal Service.
Trained customer service representatives and
sales personnel historically have been available for the Alloy
and Girlfriends LA brands 24 hours a day, 7 days a
week through multiple toll-free telephone numbers. CCS and Old
Glory trained customer service representatives historically have
been available from 5:00 A.M. to 10:00 P.M. Eastern
Standard Time, Monday through Friday; 5:00 A.M. to
9:30 P.M. on Saturday; and 9:30 A.M. to
10:00 P.M. on Sunday, while sales personnel are available
24 hours a day, 7 days per week. Dan's Comp
customer service representatives and sales personnel are
available from 9:00 A.M. to 10:00 P.M. Eastern
Standard Time, Monday through Friday; from 10:00 A.M. to
8:00 P.M. on Saturday, and from 12 P.M. to 8 P.M.
on Sunday. dELiA*s trained customer service representatives are
available from 8:00 A.M. to 2:00 A.M. Eastern Standard
Time, 7 days per week, while sales personnel are available
24 hours a day, 7 days per week. The same management
team, with dedicated personnel for each brand, now handle Alloy
and CCS customer service and sales calls, all during the same
service hours. The representatives guide customers through the
order process, monitor order progress and provide general
information about our products such as sizing advice and product
features.
Retail Stores Segment
Our retail stores segment derives revenue
primarily from the sale, through dELiA*s retail and outlet
stores, of apparel, accessories and home furnishings to
consumers. Our dELiA*s retail stores display merchandise
exclusively in mall stores and sell directly to customers who
visit those locations. As of June 8, 2004, we operated 57
dELiA*s stores, including six outlet stores, in 22 states.
The six outlet stores are located in Riverhead, New York;
Central Valley, New York; Tannersville, Pennsylvania; Jackson,
New Jersey; San Marcos, Texas; and Clinton, Connecticut.
Our retail stores range in size from 2,500 to 5,100 square
feet, with an average size of approximately 3,700 square
feet. We began operation of the dELiA*s stores upon the
acquisition of dELiA*s in September 2003. Retail store revenues
from the date of acquisition through the end of fiscal year
40
2003 were $30.1 million. In the fourth
quarter of fiscal 2003, we made a strategic decision to close up
to 17 dELiA*s retail stores, six of which have been closed as of
June 8, 2004.
Store Operations.
Each store has a manager, one or more assistant managers, and
approximately six to twelve part-time sales associates. District
managers supervise approximately five to eight stores covering a
wide geographic area, and approximately four or five district
managers report to a regional manager. We have two regional
managers. District managers, store managers, assistant store
managers and part-time sales associates participate in a bonus
program based on achieving predetermined levels of sales in
their respective stores. dELiA*s stores are open during mall
shopping hours. dELiA*s has well-established store operating
policies and procedures and an extensive in-store training
program for new store managers and assistant store managers. We
place great emphasis on our loss prevention program in order to
control inventory shrinkage.
Store Expansion.
During fiscal 2003 we did not open any new dELiA*s stores.
dELiA*s' site selection strategy historically has been to
locate its stores primarily in regional malls serving markets
that meet its demographic criteria, including average household
income and population density. It also has considered mall sales
per square foot, the performance of other retail tenants serving
teens and young adult customers, anchor tenants and occupancy
costs. As part of our ongoing evaluation of the dELiA*s
operations, we have completed our assessment of dELiA*s'
store portfolio and estimated store exit, lease costs, and
severance related to 17 dELiA*s retail stores. The growth of our
retail store operations depends upon our ability to operate
stores on a profitable basis. If we decide to open additional
retail stores, our ability to expand our retail store operations
successfully will be dependent upon a number of factors,
including sufficient demand for our merchandise in existing and
new markets, our ability to locate and obtain favorable store
sites, negotiate acceptable lease terms, obtain adequate
merchandise supply, and hire and train qualified management and
other employees.
Sponsorship and Other Activities
Segment
Our sponsorship and other activities segment
derives revenue largely from traditional, blue chip advertisers
that seek highly targeted, measurable and effective marketing
programs to reach Generation Y. Advertisers can reach
Generation Y through integrated marketing programs that
include our catalogs, books, websites, and display media boards,
as well as through promotional events, product sampling, college
and high school newspaper advertising, customer acquisition
programs and other marketing services that we provide.
Sponsorship and other revenues for fiscal years 2001, 2002 and
2003 were $41.6 million, $131.8 million, and
$185.0 million respectively.
Sponsorship and Advertising
360 Youth is our media and marketing arm, which
includes the assets and experience of several college and teen
marketing companies, including CASS Communications, Market Place
Media (All Campus Media and Armed Forces Communications),
YouthStream, Private Colleges & Universities and
others, to provide sales and marketing solutions targeting young
adults. 360 Youth enables Fortune 500 companies and other
advertising clients to reach approximately 25 million
Generation Y consumers each month through a comprehensive
mix of programs incorporating proprietary media assets such as
school-based media boards, websites and catalogs, as well as
college, high school, military base and multi-cultural
newspapers. We own and operate over 30,000 display media boards
that are located in high traffic areas on college and high
school campuses. These one, two or three panel display media
boards often feature full color, backlit advertising as well as
scrolling electronic messaging. Through our newspaper
advertising units, we are able to connect advertisers with more
than 55 million readers throughout the United States. The
acquisition of InSite in March 2004 added approximately
13,000 panels to our out-of-home media network, with a
focus on bar and restaurant venues, giving us improved
advertising access to the young adult market.
On Campus Marketing is our college-focused
specialty marketing business, which provides to college students
and their parents a variety of college- or university-endorsed
products. Products range from residence hall linens to care
packages to diploma frames. During fiscal 2003, we acquired
substantially all of the assets and liabilities of OCM Direct,
Inc., Collegiate Carpets, Inc. and Carepackages, Inc., all of
which were wholly owned
41
subsidiaries of Student Advantage, Inc., which
businesses are held by our wholly owned subsidiaries, On Campus
Marketing, LLC, Collegiate Carpets, LLC and Care Packages, LLC.
Promotional Marketing
Alloy Marketing and Promotions (AMP) is our
promotional marketing unit specializing in event and field
marketing, sampling and acquisitions programs, Internet design
services and consumer research. During fiscal 2002, we
consolidated under AMP the assets and experience of established
promotion agencies and marketing services companies, including
the 360 Youth business of MarketSource Corporation (though we
have transferred the 360 Youth name to our media and marketing
arm), Triple Dot Communications, Y-Access and Target
Marketing & Promotions, to deliver effective,
customized promotions. AMP clients include AT&T, Verizon
Wireless, Maybelline, Garnier, Hasbro, Panasonic, New Balance
and Paramount Pictures.
Print Media/ Websites
We reach Generation Y consumers through
catalogs, custom publications and the Internet.
Alloy/ CCS
Catalogs
— Our catalogs
enable our advertising clients and marketing partners to reach
the Generation Y audience through print advertisements. We
have included advertising pages in certain of our catalogs.
During fiscal 2003, we allocated up to nine pages of advertising
per Alloy catalog and up to eight pages per CCS catalog.
Private Colleges &
Universities
— Under the
Private Colleges & Universities brand, we publish over
30 editions of targeted college guides providing information
about private colleges and universities and the admissions
process to college-bound high school students, their parents,
and high-school guidance counselors. Our editions target
students based on academic achievement, geography and special
interests such as science and medicine, among others. We
distribute our guidebooks to college-bound students across the
United States. Complementing our published college and
university guides, our Private Colleges & Universities
websites (WWW.PRIVATECOLLEGES.COM and WWW.COLLEGEXPRESS.COM)
provide information on colleges and universities to
college-bound high school students. Hundreds of colleges and
universities advertise their programs and recruit students via
these websites.
Alloy/dELiA*s/ CCS/ Dan's Comp
Websites
— Our direct
marketing websites complement our catalogs of the same name and
enable our advertisers and clients to reach our
Generation Y audience online.
eStudentLoan
—
Our eStudentLoan websites (WWW.ESTUDENTLOAN.COM and
WWW.ABSOLUTELYSCHOLARSHIPS.COM) feature college scholarship and
financial aid database search engines. These websites complement
our college recruitment publications and websites to serve the
college-bound segment of Generation Y.
College
Club
— Our college club
website (WWW.COLLEGECLUB.COM) features e-mail, clubs, chat,
personal sites, student discounts and advice, and enables
advertisers to reach the college market online.
Careers and
Colleges
— Our Careers and
Colleges website (WWW.CAREERSANDCOLLEGES.COM) features a virtual
guidance counselor that helps students explore career and
college options. The website provides essential advice for
choosing a career, selecting a school, and paying for college.
Content
Alloy Entertainment/ 17th Street
Productions
— Through Alloy
Entertainment and 17th Street Productions, we develop youth
entertainment properties including books and concepts for
television series and motion pictures. We believe we are the
largest packager of books for the teen market. Some of our
properties include
Roswell, Sweet Valley High, Fearless
and
The Sisterhood of the Traveling Pants.
Sales & Marketing
    Salesforce
Our advertising sales organization includes over
100 sales professionals who are either account managers
generally responsible for specific geographic regions or product
specialists. Our account managers and product
42
specialists work closely together to cross-sell
our media assets and marketing capabilities to existing
advertising customers and to build relationships with new
advertisers. Our account managers are trained and motivated to
sell the entire portfolio of our media and advertising services
including:
•
advertising in our custom publications, catalogs
    and websites;
•
advertising on our display media boards;
•
marketing programs such as product sampling,
    customer acquisition programs and promotional events; and
•
advertising in college, high school, military
    base and multi-cultural newspapers.
Our advertising sales organization has grown
through a combination of external hiring and our acquisitions of
Private Colleges & Universities, CASS Communications,
360 Youth, Market Place Media and On Campus Marketing, each of
which had an experienced sales force.
Our advertisers come from a wide range of
industries that target the Generation Y audience including
apparel, consumer goods and electronics, cosmetics,
entertainment, financial services, food and beverage and others.
Our advertising revenue base is well diversified, and no single
advertiser represented more than 4% of our total sponsorship and
other activities revenue in fiscal 2003.
Infrastructure, Operations and
Technology
Our operations are dependent on our ability to
maintain our computer and telecommunications systems in
effective working order and to protect our systems against
damage from fire, natural disaster, power loss,
telecommunications failure or similar events.
Where appropriate, we have implemented disaster
recovery programs for our various businesses. Critical files are
copied to backup tapes each night and regularly stored at
off-site storage facilities. Arrangements have also been made
for the availability of third-party "hot sites" as
well as telecommunications recovery capability. Our servers are
powered by an uninterruptible power supply to provide back-up
power at the operations facilities within milliseconds of a
power outage. Redundant Internet connections and providers
deliver similar protection for our online services. We
implemented these various redundancies and backup measures in
order to minimize the risk associated with damage from fire,
power loss, telecommunications failure, break-ins, computer
viruses, denial of service (DOS) attacks, hacking and other
events beyond our control.
We strive for no downtime in our online
services.
All critical components of
the system are redundant, which allows continuous service in
case of unexpected component failure, maintenance or upgrades.
Currently, we license commercially available
technology whenever possible in lieu 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. Since April 2002,
Exodus, a Cable & Wireless Service (recently acquired
by SAVVIS Communications Corp), and Equinix Inc., third-party
providers located in Sterling, Virginia and Ashburn, Virginia,
respectively, have provided us with co-location and bandwidth
(i.e., our Internet connection). Our infrastructure is scaleable
which allows us to adjust quickly to our expanding user base.
Steps were taken upon the acquisition of dELiA*s to migrate its
commercial systems from the Cable & Wireless data
center in Jersey City, New Jersey into Alloy's standard,
redundant facility in Virginia. We expect to complete this
process by the end of the second quarter of fiscal 2004. Other
data and voice systems in the call center and fulfillment center
are being hardened and made redundant with the addition of
backup circuits, Sonet rings, backup generators and other system
upgrades. We also expect to complete these processes by the end
of the second quarter of fiscal 2004.
Competition
Competition for the attention of
Generation Y consumers is considerable. Our catalogs
compete with other catalog retailers and direct marketers, some
of which specifically target our customers. We also compete with
a variety of other companies serving segments of the
Generation Y market including various mail-order and web-
43
based retailers, promotions and marketing
services firms, youth-targeted traditional retailers either in
their physical or online stores, and online service providers
that offer products of interest to Generation Y consumers.
Our dELiA*s retail stores compete with traditional department
stores, as well as specialty retailers, for teen and young adult
customers.
We compete for users and advertisers with many
media companies, including companies that attempt, as we do, to
target Generation Y consumers. These include
Generation Y-focused magazines such as
Seventeen, YM,
Teen
and
Teen People;
teen-focused television and
cable channels such as the WB Network and MTV; websites
primarily focused on the Generation Y demographic group;
and online service providers with teen-specific channels, such
as America Online.
Many of our current and potential competitors
have longer operating histories, larger customer or user bases
and significantly greater financial, marketing and other
resources than we do. In addition, competitors could enter into
exclusive distribution arrangements with our vendors or
advertisers and deny us access to their products or their
advertising dollars. If we face increased competition, our
business, operating results and financial condition may be
materially and adversely affected.
We believe that our principal competitive
advantages are:
•
advertising in college, high school, military
    base and multi-cultural newspapers;
•
the size and level of detail in our database;
•
our relationships with advertisers and marketing
    partners;
•
the consumer and media brands we have developed
    in the Generation Y market;
•
our knowledge of the Generation Y audience
    and our ability through our marketing franchises to continually
    analyze the market; and
•
our ability to deliver targeted Generation Y
    audiences to advertisers through cost-effective, cross-media
    advertising programs.
Seasonality
Our historical revenues and operating results
have varied significantly from quarter to quarter due to
seasonal fluctuations in consumer purchasing patterns and the
impact of acquisitions. Sales of apparel, accessories, footwear
and action sports equipment through our websites, catalogs and
retail stores have been higher in our third and fourth fiscal
quarters, which contain the key back-to-school and holiday
selling seasons, than in our first and second fiscal quarters.
We believe that advertising and sponsorship sales follow a
similar pattern, with higher revenues in the third and fourth
quarters (particularly the third quarter) as marketers more
aggressively attempt to reach our Generation Y audience
during these major spending seasons and capture student interest
at the outset of the school year.
Intellectual Property
We have registered the Alloy name, among other
trademarks, with the United States Patent and Trademark Office.
Applications for the registration of certain of our other
trademarks and service marks are currently pending. We also use
trademarks, trade names, logos and endorsements of our suppliers
and partners with their permission. We are not aware of any
pending material conflicts concerning our marks or our use of
others' intellectual property.
Government Regulation
We are subject, directly and indirectly, to
various laws and governmental regulations relating to our
business. The Internet is rapidly evolving and few laws or
regulations directly apply to online commerce and community
websites. Due to the increasing popularity and use of the
Internet, governmental authorities in the United States and
abroad may adopt laws and regulations to govern Internet
activities. Laws with respect to online commerce may cover
issues such as pricing, taxing, distribution, unsolicited email
("spamming") and characteristics and
44
quality of products and services. Laws with
respect to community websites may cover content, copyrights,
libel, obscenity and personal privacy. Any new legislation or
regulation or the application of existing laws and regulations
to the Internet could have a material and adverse effect on our
business, results of operations and financial condition.
Governments of other states or foreign countries
might attempt to regulate our transmissions or levy sales or
other taxes relating to our activities even though we do not
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.
Our failure to qualify as a foreign corporation
in a jurisdiction where we are required to do so could subject
us to taxes and penalties for the failure to qualify. It is
possible that state and foreign governments might also attempt
to regulate our transmissions of content on our website or
prosecute us for violations of their laws. For example, a French
court has ruled that a website operated by a United States
company must comply with French laws regarding content, and an
Australian court has applied the defamation laws of Australia to
the content of a U.S. publisher posted on the
company's website. We cannot assure you that state or
foreign governments will not charge us with violations of local
laws or that we might not unintentionally violate these laws in
the future, or that foreign citizens will not obtain
jurisdiction over us in a foreign country, subjecting us to
litigation in that country under the laws of that country.
The United States Congress enacted the
Children's Online Privacy Protection Act of 1998
("COPPA") and the Federal Trade Commission
("FTC") promulgated implementing regulations, which
became effective in 2000. The principal COPPA requirements apply
to websites, or those portions of websites, directed to children
under age 13. COPPA mandates that individually identifiable
information about minors under the age of the 13 not be
collected, used or displayed without first obtaining informed
parental consent that is verifiable in light of present
technology, subject to certain limited exceptions. As a part of
our efforts to comply with these requirements, we do not
knowingly collect 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. This will
likely dissuade some percentage of our customers from using our
website, which may adversely affect our business. While we use
our best efforts to ensure that our websites are compliant with
COPPA, our efforts may not have been successful. If it turns out
that one or more of our websites is not COPPA compliant, we may
face litigation with the FTC or individuals or face a civil
penalty, which could adversely affect our business.
A number of government authorities both in the
United States and abroad, as well as private parties, are
increasing their focus on privacy issues and the use of personal
information. The FTC and attorneys general in several states
have investigated the use of personal information by some
Internet companies. In particular, an attorney general 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. As a result,
we review our privacy policies on a regular basis and we believe
we are in compliance with relevant federal and state laws.
However, our business could be adversely affected if new
regulations or decisions regarding the use and/ or disclosure of
personal information are made, or if government authorities or
private parties challenge our privacy practices.
In December, 2003, the Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003
("CAN-SPAM") was enacted by the United States
Congress. This legislation is effective as of January 1,
2004, and regulates "commercial electronic mail
messages," (i.e., email) the primary purpose of which is to
promote a product or service. Among its provisions are ones
requiring specific types of disclosures in covered emails,
requiring specific opt-out mechanisms and prohibiting certain
types of deceptive headers. Violations of its provisions may
result in civil money penalties and criminal liability. CAN-SPAM
further authorizes the FTC to establish a national
"Do-Not-E-Mail" registry akin to the recently adopted
Do Not Call Registry. Any entity that sends commercial email
messages, such as Alloy and our various subsidiaries, and those
who re-transmit such messages, must adhere to the CAN-SPAM
requirements. Compliance with these provisions may limit our
ability to send certain types of emails on our own behalf and on
behalf of various of our advertising clients, which may
45
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 litigation with the FTC or face civil penalties, which
could adversely affect our business.
The European Union Directive on the Protection of
Personal Data may affect our ability to make our websites
available in Europe if we do not afford adequate privacy to
European users. Similar legislation was recently passed in other
jurisdictions and may have a similar effect. Legislation
governing privacy of personal data provided to Internet
companies 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.
Employees
As of January 31, 2004, we had
1,274 full-time and 2,733 part-time employees. Of the
1,274 full-time employees, 40 were senior management; 345
worked in sales, marketing and sales support; 75 worked in
finance; 241 worked in warehouse/fulfillment/customer service;
395 worked in other management and personnel; and 178 were
employed by our dELiA*s retail stores. Of the
2,733 part-time employees, 1,541 worked for The Staffing
Authority, LLC, one of our subsidiaries, 275 were Alloy, Inc.
temporary staff and 917 were part-time associates at dELiA*s
retail stores. None of our employees are covered by a collective
bargaining agreement. We consider relations with our employees
to be good.
Financial Information About Segments
Financial information about our segments is
summarized in Note 19 to consolidated financial statements
found at page F-48 of this prospectus and in Note 8 to
the unaudited financial statements found at page F-63 of
this prospectus.
Website Access to Reports
Our corporate website is WWW.ALLOYINC.COM. Our
periodic and current reports are available free of charge on the
"Investor Relations" page of this website as soon as
reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange
Commission (the "SEC"). The items and information on
our website are not a part of this prospectus.
PROPERTIES
The following table sets forth information
regarding the principal facilities, excluding retail stores,
that we used during fiscal 2003. Except for the property in
Hanover, PA, which we own, all such facilities are leased. We
believe our facilities are well maintained and in good operating
condition.
Appr. Sq.
Location
Use
Footage
New York, NY
Corporate office
40,000
Chicago, IL
Advertising and sales office
16,000
Los Angeles, CA
Advertising and sales office
7,400
Santa Barbara, CA
Market Place Media
20,000
Boston, MA
Advertising and sales office
18,000
Mt. Vernon, IN
Dan's Comp general office, call center,
    warehouse
40,000
Cranbury, NJ
360 Youth general office, AMP warehouse
80,000
New York, NY
dELiA*s general office space
36,000
Westerville, OH
Call center
15,000
Hanover, PA
Warehouse and fulfillment center
360,000
46
LEGAL PROCEEDINGS
On or about November 5, 2001, a putative
class action complaint was filed in the United States District
Court for the Southern District of New York naming as defendants
us, 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
our common stock between May 14, 1999 and December 6,
2000 and alleges violations of Sections 11, 12(a)(2) and 15
of the Securities Act of 1933 (the "Securities Act")
and Section 10(b) of the Securities Exchange Act of 1934
(the "'34 Act") and Rule 10b-5 promulgated
thereunder. On or about April 19, 2002, plaintiff filed an
amended complaint against us, the individual defendants and the
underwriters of our initial public offering. The amended
complaint asserts violations of Section 10(b) of the
'34 Act and mirrors allegations asserted against scores of
other issuers sued by plaintiffs' counsel. Pursuant to an
omnibus agreement negotiated with representatives of the
plaintiffs' counsel, Messrs. Diamond and Johnson have
been dismissed from the litigation without prejudice. In
accordance with the Court's case management instructions,
we joined in a global motion to dismiss the amended complaints,
which was filed by the issuers' liaison counsel. By opinion
and order dated February 19, 2003, the District Court
denied in part and granted in part the global motion to dismiss.
With respect to us, the Court dismissed the Section 10(b)
claim and let the plaintiffs proceed on the Section 11
claim. Accordingly, the remaining claim against us will focus
solely on whether the registration statement filed in connection
with our initial public offering contained an untrue statement
of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statement therein
not misleading. Although we have not retained a damages expert
at this time, the dismissal of the Section 10(b) claim
likely will reduce the potential damages that plaintiffs can
claim. Management believes that the remaining allegations
against us are without merit. We and the individual defendants
have retained Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC
in connection with this matter. We participated in the
Court-ordered mediation with the other issuer defendants, the
issuers' insurers and plaintiffs to explore whether a
global resolution of the claims against the issuers could be
reached. To this end, a memorandum of understanding setting
forth the proposed terms of a settlement was signed by counsel
to several issuers, including our counsel, which is not binding
upon us. In a press release dated June 26, 2003,
plaintiffs' counsel announced that the memorandum of
understanding had been signed, and that the process of obtaining
the approval of all parties to the settlement was underway. We
are participating in that process. Any definitive settlement,
however, will require final approval by the Court after notice
to all class members and a fairness hearing.
On or about March 8, 2003, several putative
class action complaints were filed in the United States District
Court for the Southern District of New York naming as defendants
us, James K. Johnson, Jr., Matthew C. Diamond and Samuel A.
Gradess. The complaints purportedly were filed on behalf of
persons who purchased our common stock between August 1,
2002 and January 23, 2003, and, among other things, allege
violations of Section 10(b) and Section 20(a) of the
'34 Act and Rule 10b-5 promulgated thereunder stemming
from a series of allegedly false and misleading statements made
by us to the market between August 1, 2002 and
January 23, 2003. At a conference held on May 30,
2003, the Court consolidated the actions described above. On
August 5, 2003, Plaintiffs filed a consolidated class
action complaint (the "Consolidated Complaint") naming
the same defendants, which supersedes the initial complaint.
Relying in part on information allegedly obtained from former
employees, the Consolidated Complaint alleges, among other
things, misrepresentations of our business and financial
condition and the results of operations during the period from
March 16, 2001 through January 23, 2003 (the
"class period"), which artificially inflated the price
of our stock, including without limitation, improper
acceleration of revenue, misrepresentation of expense treatment,
failure to properly account for and disclose consignment
transactions, and improper deferral of expense recognition. The
Consolidated Complaint further alleges that during the class
period the individual defendants and the Company sold stock and
completed acquisitions using our stock. On June 28, 2004 we
reached a tentative settlement with the plaintiffs in this
action, which settlement, if approved by the court after notice
to the class members and a hearing, is in an amount which should
be covered entirely under our applicable directors' and
officers' insurance policies. The individual defendants
have retained the law firm of Cahill, Gordon & Reindel
in connection with this matter. We have retained the law firm of
Katten Muchin Zavis Rosenman in connection with this matter.
47
dELiA*s currently is party to a purported class
action litigation, which originally was filed in two separate
complaints in Federal District Court for the Southern District
of New York in 1999 against dELiA*s Inc. and certain of its
officers and directors. These complaints were consolidated. The
consolidated complaint alleges, among other things, that the
defendants violated Rule 10b-5 under the '34 Act by
making material misstatements and by failing to disclose certain
allegedly material information regarding trends in the business
during part of 1998. The parties have reached an agreement on a
full settlement of the action, which was approved by the court
on April 21, 2004. The entire settlement amount will be
covered by dELiA*s insurance carrier.
On or about February 1, 2002, a complaint
was filed in the Circuit Court of Cook County, Illinois naming
dELiA*s as a defendant. The complaint purportedly was filed on
behalf of the State of Illinois under the False Claims Act and
the Illinois Whistleblower Reward and Protection Act and seeks
unspecified damages and penalties for dELiA*s alleged failure to
collect and remit use tax on items sold by dELiA*s through its
catalogs and website to Illinois residents. On April 8,
2004, the complaint was served on dELiA*s by the Illinois
Attorney General's Office, which assumed prosecution of the
complaint from the original filer. dELiA*s has retained the law
firm of Katten Muchin Zavis Rosenman in connection with this
matter. On June 15, 2004, dELiA*s filed a motion to dismiss the
action and joined in a Consolidated Joint Brief In Support Of
Motion To Dismiss previously filed on behalf of defendants in
similar actions being pursued by the Illinois Attorney General.
Management believes the proceedings are without merit and
intends to defend the action vigorously.
We are involved in additional legal proceedings
that have arisen in the ordinary course of business. We believe
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 our financial condition or operating
results.
Qualitative and Quantitative Disclosure About
Market Risk
As of April 30, 2004, we held a portfolio of
$19.8 million in fixed income marketable securities for
which, due to the conservative nature of our investments and
relatively short duration, interest rate risk is mitigated. We
do not own any derivative financial instruments in our
portfolio. Accordingly, we do not believe there is any material
market risk exposure with respect to derivatives or other
financial instruments that would require disclosure under this
item. Additionally, the $69.3 million of Debentures were
issued at a fixed interest rate of 5.375%. 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.
Changes in and Disagreements with
Accountants
On May 31, 2002, we dismissed Arthur
Andersen LLP ("Arthur Andersen") as our independent
auditors and named KPMG LLP ("KPMG") as our new
independent auditors in accordance with a recommendation of the
Audit Committee of our Board of Directors. Arthur Andersen
previously audited our consolidated financial statements for the
year ended January 31, 2002. The report of Arthur Andersen
on our consolidated financial statements for the year ended
January 31, 2002 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the
same period, there were no disagreements with Arthur Andersen on
any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
On May 28, 2004, the Audit Committee of our
Board of Directors (the "Board") dismissed KPMG LLP
("KPMG") as our independent auditors effective
immediately. The Audit Committee made the decision to engage BDO
Seidman, LLP ("BDO") as our independent auditors for
the fiscal year ending January 31, 2005, effective as of
May 28, 2004. The report of KPMG on our consolidated
financial statements for the years ended January 31, 2003
and January 31, 2004 did not contain an adverse opinion or
a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles, other than
the reference to our change in method of accounting for goodwill
and other intangible assets in 2002. During the same period,
there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
During our two most recent fiscal years ended
January 31, 2003 and January 31, 2004, and through
May 28, 2004, there were no "reportable events"
as listed in Item 304(a)(1)(v)(A)-(D) of
Regulation S-K adopted by the Securities and Exchange
Commission (the "Commission"), except that, in
performing its audit of our Consolidated Financial Statements
for our fiscal year ended January 31, 2004, KPMG noted two
matters
48
involving our internal controls that it
considered to be reportable conditions and/or material
weaknesses under the standards established by the American
Institute of Certified Public Accountants. A reportable
condition, which may or may not be determined to be a material
weakness, involves matters relating to significant deficiencies
in the design or operation of internal controls that, in
KPMG's judgment, could adversely affect our ability to
record, process, summarize and report financial data consistent
with the assertions of management on the financial statements.
The first reportable condition identified by KPMG related to the
absence of appropriate reviews and approvals of transactions,
accounting entries and systems output at our dELiA*s subsidiary.
According to KPMG, numerous adjusting entries came about as a
result of its audit procedures at dELiA*s that indicated a lack
of timely and appropriate management review during the closing
process. This reportable condition was not considered to be a
material weakness.
The second identified reportable condition was
considered a material weakness and concerned the ability of
accounting personnel to properly apply all relevant accounting
pronouncements related to goodwill, intangible assets and other
long-lived assets. Specifically, KPMG indicated that when we
applied the provisions of FASB No. 142 relating to the
annual assessment of goodwill and other indefinite-lived
intangible assets carrying value, we incorrectly applied the
provisions of SFAS No. 142 needed to calculate the
impairment amounts, and failed to test separately the carrying
values of our other indefinite-lived intangible assets. KPMG
also indicated that we incorrectly applied the provisions of
SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," in calculating impairment
amounts of other long-lived assets. In addition, they noted that
we had not formally documented triggering events for impairment
testing under either standard. Consequently, we did not properly
identify the adjustments that arose due to the weakness in our
internal control process, and KPMG indicated that we need to
implement modifications and upgrades to our financial reporting
process to ensure that this situation does not occur in the
future.
The reportable condition and material weakness
have been discussed in detail by management, our Audit Committee
and KPMG, and we have authorized KPMG to respond fully to the
inquiries of BDO, our new independent auditors, concerning the
subject matter of the foregoing reportable conditions.
49
MANAGEMENT
The Board Of Directors
Our Restated Certificate of Incorporation, as
amended, and Restated By-Laws provide that our business is to be
managed by or under the direction of our Board of Directors. Our
Board of Directors is divided into three classes for purposes of
election. One class is elected at each annual meeting of
stockholders to serve for a three-year term. Our Board of
Directors currently consists of six members, classified into
three classes as follows: (1) Samuel A. Gradess and Edward
A. Monnier constitute a class with a term ending at the 2004
Annual Meeting of Shareholders; (2) Matthew C. Diamond and
James K. Johnson, Jr. constitute a class with a term ending
at the 2005 Annual Meeting and (3) Peter M. Graham and
Anthony N. Fiore constitute a class with a term ending at the
2006 Annual Meeting.
David Yarnell resigned from our Board of
Directors on February 1, 2004. Prior to his resignation,
Mr. Yarnell was included in the class of directors with a
term expiring at the 2006 Annual Meeting, and was a member of
the Audit Committee and Compensation Committee.
Mr. Yarnell's replacement, Anthony N. Fiore, was
appointed by the Board of Directors effective June 2, 2004.
Based upon a review by the Board of Directors of
all relevant information, the Board of Directors has determined
that Messrs. Graham, Monnier and Fiore are not officers or
employees of Alloy, Inc., and none of them have a relationship
which, in the opinion of the Board of Directors, would interfere
with the exercise of their independent judgment in carrying out
the responsibilities of a director, and that each of
Messrs. Graham, Monnier and Fiore is an "independent
director" as that term is defined under
Rule 4200(a)(15) of the NASDAQ Marketplace Rules and is
"independent" as that term is defined in the
applicable rules and regulations promulgated by the SEC.
The names of our directors, and certain
information about them, including their positions on standing
committees of the Board of Directors, are set forth below:
Name
Age
Position
Matthew C. Diamond(1)
35
Chairman, Chief Executive Officer, Treasurer and
    Director
James K. Johnson, Jr.(1)
37
Chief Operating Officer, President and Director
Samuel A. Gradess(1)
38
Chief Financial Officer, Secretary and Director
Peter M. Graham(2)
49
Lead Non-Executive Director
Edward A. Monnier(3)
40
Director
Anthony N. Fiore(4)
62
Director
(1)
Member of the Administration Committee.
(2)
Chairman of the Audit Committee, and Member of
    the Compensation Committee and the Nominating and Corporate
    Governance Committee.
(3)
Chairman of the Nominating and Corporate
    Governance Committee and Member of the Audit Committee.
(4)
Member of the Audit Committee and Compensation
    Committee
The following is a brief summary of the
background of each of our directors:
Matthew C. Diamond
founded Alloy together with
Mr. Johnson in January 1996, and served as the Director of
Marketing and Planning until January 1999. He has served as one
of our directors since July 1996, was appointed Chief Executive
Officer in January 1999 and was elected Chairman of the Board in
April 1999. Mr. Diamond received his MBA from the Harvard
Graduate School of Business in 1996 and his BA in International
Studies and Economics from the University of North Carolina at
Chapel Hill in 1991. Mr. Diamond is also a director of
Genesco, Inc., a publicly traded company.
50
James K.
Johnson, Jr.
founded Alloy
together with Mr. Diamond in January 1996 and has been a
director since that time. He was appointed President of Alloy in
January 1997 and Chief Operating Officer in January 1999.
Mr. Johnson received his BA in History from Hamilton
College in 1989.
Samuel A. Gradess
joined us in July 1996 and has been a
director since that time. He was appointed Secretary and
Director of Finance and Administration of Alloy in January 1997
and Chief Financial Officer in January 1999. Mr. Gradess
received his BA in Economics from the University of Virginia in
1987.
Peter M. Graham
, who
recently was appointed as our lead non-executive director, has
served as one of our directors since November 1998. He is a
managing director of Ladenburg Thalmann & Co., Inc.
From 1994 until 2001, he held various positions with Ladenburg
Thalmann Group Inc., including Principal, President and Vice
Chairman of its principal subsidiary, Ladenburg
Thalmann & Co. Inc. Mr. Graham joined Ladenburg
Thalmann & Co. Inc. in 1976 after having attended the
Wharton School of Business at the University of Pennsylvania.
Edward Monnier
has
served as one of our directors since March 2001. He is an
independent consultant specializing in mergers and acquisitions
and corporate strategy. Previously, Mr. Monnier was a Vice
President of Corporate Development & Strategy with
Liberty Broadband Interactive Television, a wholly owned
subsidiary of Liberty Media Corporation, and held various
positions with Liberty Media Corporation subsidiaries from
October 1999 until November 2003. From June 1997 until October
1999, Mr. Monnier served as a strategy and mergers and
acquisitions consultant for LEK Consulting. Mr. Monnier
received a B.A. in Anthropology and in Philosophy, both from
Emory University in 1989 and an MBA from the Wharton School of
Business at the University of Pennsylvania in 1996.
Anthony N. Fiore
has
served as one of our directors since June 2004. He is Executive
Vice President and part owner of MarketSource LLC, a private New
Jersey-based company that is an integrated marketing services
company, specializing in sales, marketing and technology
solutions. Mr. Fiore received a B.S. in Business
Administration from Wagner College in 1963 and an MBA from Pace
University in 1967.
Committees Of The Board Of Directors And
Meetings
Meeting Attendance.
During the fiscal year ended January 31, 2004, there were
eight meetings of our Board of Directors. The Board of Directors
also acted by unanimous written consent, pursuant to Delaware
law, on eight occasions during this period. Each director was in
attendance, either in person or via telephone, at 75% or more of
the total number of meetings of the Board and of committees of
the Board on which he served during the fiscal year ended
January 31, 2004.
Audit Committee.
Our
Audit Committee met nine times during the fiscal year ended
January 31, 2004, and acted by unanimous written consent
pursuant to Delaware law three times. This committee currently
has three members, Peter M. Graham, Edward Monnier and Anthony
Fiore. Our Audit Committee reviews, acts on and reports to the
Board of Directors with respect to various auditing and
accounting matters, including the selection of our independent
auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of our independent auditors and our
accounting practices. The Audit Committee operates pursuant to a
written charter, which was adopted April 5, 2000 and
amended and restated by action of the Board of Directors on
May 21, 2004.
All of the current members of the Audit Committee
are non-employee directors who: (1) meet the criteria for
independence set forth in Rule 10A-3(b)(1) under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Rule 4200 of the NASDAQ Marketplace Rules;
(2) have not participated in the preparation of the
financial statements of Alloy, Inc. or any of its current
subsidiaries at any time during the past three years; and
(3) are able to read and understand fundamental financial
statements, including a company's balance sheet, income
statement and cash flow statement.
Compensation
Committee.
Our Compensation Committee
met twice during the fiscal year ended January 31, 2004,
either in person or via telephone, and acted by unanimous
written consent pursuant to Delaware law on four occasions. This
committee currently is comprised of Anthony N. Fiore and
Peter M. Graham. Our Compensation Committee is authorized
to make recommendations concerning salaries and incentive
compensation for our employees and consultants, establish and
approve salaries and incentive compensation for certain of
51
our executive officers and administer our
employee benefit and stock option plans. The sole member of our
Compensation Committee, Mr. Graham, is an "independent
director" as that term is defined under Rule 4200 of
the NASDAQ Marketplace Rules and is "independent" as
that term is defined in the applicable rules and regulations
promulgated by the SEC, and is neither an officer nor employee
of Alloy, Inc. or any of its subsidiaries.
Administration
Committee.
Our Administration
Committee met once, and acted by unanimous written consent
pursuant to Delaware law on two occasions, during the fiscal
year ended January 31, 2004. This Committee has three
members, Matthew C. Diamond, James K. Johnson, Jr. and
Samuel A. Gradess, each of whom is an executive officer of the
Company. The Board of Directors has delegated authority to the
Administration Committee to make option grants, except for
grants to Matthew C. Diamond, James K. Johnson, Jr. and
Samuel A. Gradess. Any grant made by the Administration
Committee pursuant to the power granted to it by the Board of
Directors also requires the approval of the Compensation
Committee if the grant (i) is for more than
25,000 shares to any single grantee, (ii) would, when
combined with all other grants made during the fiscal quarter in
which it was made, result in aggregate grants for more than
400,000 shares during such fiscal quarter, net of option
cancellations and expirations during such fiscal quarter, or
(iii) is to an officer or director of the Company. The
Board of Directors has also delegated authority to the
Administration Committee to approve acquisitions of up to an
aggregate of $10,000,000 of acquisition consideration within a
fiscal quarter.
Nominating And Corporate Governance
Committee.
Our Nominating and
Corporate Governance Committee was formed on May 21, 2004
and is comprised of Peter Graham and Edward Monnier, both of
whom have been found by the Board of Directors to be an
"independent director" as that term is defined under
Rule 4200 of the NASDAQ Marketplace Rules and
"independent" pursuant to the applicable rules and
regulations promulgated by the SEC. Mr. Monnier has been
designated Chairman of the Nominating and Corporate Governance
Committee, which operates pursuant to a written charter adopted
on May 21, 2004 that is publicly available on our website
at www.alloyinc.com in the Corporate Governance subsection of
the Investor Relations section.
The Nominating and Corporate Governance Committee
is responsible for (i) reviewing the appropriate size,
function and needs of the Board of Directors,
(ii) developing the Board's policy regarding tenure
and retirement of directors, (iii) establishing criteria
for evaluating and selecting new members of the Board, subject
to Board approval thereof, (iv) identifying and
recommending to the Board for approval individuals qualified to
become members of the Board of Directors, consistent with
criteria established by the Committee and the Board,
(v) overseeing the evaluation of management and the Board,
and (vi) monitoring and making recommendations to the Board
on matters relating to corporate governance.
The Committee has not yet adopted a policy
regarding the consideration of director candidates recommended
by security holders because the time for receiving such
recommendations from security holders with respect to
nominations for election at the 2004 Annual Meeting, as set
forth in the Company's bylaws, had already passed by the
time the Committee was formed. The Committee expects to adopt
such a policy prior to the 2005 Annual Meeting of Stockholders.
Except as may be required by rules promulgated by
NASDAQ or the SEC, currently there are no specific, minimum
qualifications that must be met by each candidate for the Board
of Directors, nor are there any specific qualities or skills
that are necessary for one or more of the members of the Board
of Directors to possess.
Compensation Committee Interlocks And Insider
Participation.
Mr. Graham and
Mr. Fiore constitute our Compensation Committee. Neither
Mr. Fiore nor Mr. Graham has ever been an employee of
Alloy. None of our executive officers serve as a member of the
board of directors or compensation committee of any entity that
has any executive officer serving as a member of our Board of
Directors or Compensation Committee.
Compensation Of Directors
For the fiscal year ended January 31, 2004,
our non-employee directors received director's fees of
$6,000 per fiscal quarter plus $1,000 per fiscal
quarter for each committee on which a director serves. In
addition, in the fiscal year ended January 31, 2004, our
Board authorized the grant of 4,000 shares of restricted
stock to each of Messrs. Graham and Monnier under the 1997 Plan,
which shares were issued in March 2004, and are
52
subject to the Company's right of repurchase
in certain circumstances outlined in a restricted stock
agreement between each non-employee director and the Company.
The Company's right of repurchase with respect to the
4,000 shares of restricted stock granted to the
non-employee directors under the 1997 Plan lapses with respect
to 1,000 shares on July 24, 2004, with respect to an
additional 1,000 shares on July 24, 2005, with respect
to an additional 1,000 shares on July 24, 2006, and
with respect to all 4,000 shares on July 24, 2007. In
addition, our directors may from time to time receive other
periodic grants of options to purchase shares of our Common
Stock. Directors are also reimbursed for reasonable
out-of-pocket costs incurred in attending meetings.
Executive Officers
The following table sets forth certain
information regarding our executive officers who are not also
directors. We have employment agreements with our Chief
Executive Officer and Chairman, our Chief Financial Officer and
our Chief Operating Officer. All other executive officers are
at-will employees. We have entered into offer letters with our
Chief Executive Officer of Retail and Direct Consumer Division,
and our Chief Technology Officer.
Name
Age
Position
Robert E. Bernard
53
Chief Executive Officer of Retail and Direct
    Consumer Division
Robert L. Bell
54
Chief Technology Officer
Robert E. Bernard
joined us in October 2003 and serves
as our Chief Executive Officer of Retail and Direct Consumer
Division. From 1996 through 2002, Mr. Bernard served as the
President and Chief Executive Officer of The Limited Stores, and
from 1994 through 1996 he served as the President and Chief
Operating Officer of J. Crew. Mr. Bernard received a
Bachelor of Arts in Broadcast Journalism in 1974, and a Master
of Arts in Communications and Advertising in 1975, both from
Brigham Young University in Provo, Utah.
Robert L. Bell
joined us in July 2000 as Chief
Technology Officer. From 1998 to 2000, Mr. Bell served as
Vice President of Customer Development at Edifice Information
Management Systems. Mr. Bell received his B.S. from Denison
University in Granville, Ohio in 1971 and his MS-AP from the
Stevens Institute of Technology in 1978.
53
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the total
compensation paid or accrued during fiscal 2003, 2002 and 2001
to our Chief Executive Officer and our four next most highly
compensated executive officers who earned more than $100,000
during fiscal 2003 (the "named executive officers").
No other executive officer earned greater than $100,000 in
fiscal 2003, 2002 and 2001.
Summary Compensation Table(1)
Annual Compensation
Long-Term Compensation
Fiscal Year
Shares
Restricted
Name and
Ended
Underlying
Stock
All Other
Principal Position
January 31
Salary($)
Bonus($)
Options(#)
Awards
Compensation
Matthew C. Diamond
2004
$
400,000
—
—
$
795,000
(7)
$
31,232
(2)
Chief Executive Officer
2003
$
230,000
$
103,500
—
—
$
31,232
(2)
2002
$
200,000
$
50,000
250,000
—
$
31,232
(2)
James K. Johnson, Jr.
2004
$
400,000
—
—
$
795,000
(7)
$
33,602
(2)
Chief Operating Officer
2003
$
230,000
$
103,500
—
—
$
33,602
(2)
2002
$
200,000
$
50,000
250,000
—
$
31,602
(2)
Samuel A. Gradess
2004
$
400,000
—
—
$
795,000
(7)
$
37,247
(2)
Chief Financial Officer
2003
$
230,000
$
103,500
—
—
$
37,247
(2)
2002
$
200,000
$
50,050
250,000
—
$
37,247
(2)
Robert L. Bell
2004
$
337,000
(3)
—
25,000
—
$
100,000
(2)
Chief Technology Officer
2003
$
318,000
(3)
$
50,000
27,500
—
$
100,000
(2)
2002
$
300,000
(4)
$
37,500
85,000
—
$
50,000
(2)
Robert Bernard
2004
$
600,000
(5)
—
200,000
—
$
34,694
(6)
Chief Executive Officer
2003
—
—
—
—
—
Retail and Direct
2002
—
—
—
—
—
Consumer Division
(1)
The columns for "Other Annual
    Compensation" and "Payouts" have been omitted
    because there is no compensation required to be reported.
(2)
Consists of the dollar value of insurance
    premiums paid by us with respect to a split dollar life
    insurance policy.
(3)
Of this amount, $100,000 is part of a deferred
    compensation arrangement reported in the "All Other
    Compensation" column.
(4)
Of this amount, $50,000 is part of a deferred
    compensation arrangement reported in the "All Other
    Compensation" column.
(5)
Of this amount, Mr. Bernard earned only
    $161,538 since he commenced employment with us in October 2003.
(6)
Consists of the approximately $440 per diem
    amount we agreed to pay to Mr. Bernard each day he is
    required to stay overnight in the New York City area during his
    first year of employment.
(7)
Consists of 100,000 shares of restricted
    stock granted on May 16, 2003 under the Company's
    Amended and Restated 1997 Employee, Director and Consultant
    Stock Option and Stock Incentive Plan, and issued on
    March 22, 2004. Pursuant to the restricted stock agreement
    under which the grant was made, the Company was given the right
    to repurchase the shares if the grantee's employment with
    the Company is terminated by the Company For Cause (as defined
    in the restricted stock agreement) or by the grantee for a
    reason other than a Good Reason (as defined in the restricted
    stock agreement), which repurchase right lapsed, with respect to
    50,000 shares, on January 31, 2004 and will lapse,
    with respect to the remaining 50,000 shares on
    January 31, 2005.
54
Option Grants
The following table sets forth grants of stock
options granted during the fiscal year ended January 31,
2004 to each of the named executive officers. In accordance with
the rules of the SEC, also shown below is the potential
realizable value over the term of the option (the period from
the grant date to the expiration date). This is calculated
assuming that the fair market value of our Common Stock on the
date of grant appreciates at the indicated annual rate, 5% and
10% compounded annually, for the entire term of the option and
that the option is exercised and sold on the last day of its
term for the appreciated stock price. These amounts are based on
certain assumed rates of appreciation and do not represent our
estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of
our Common Stock.
Option Grants In Last Fiscal Year
Individual Grants
Potential Realizable Value
Number of
Percent of
at Assumed Annual Rates
Shares
Total Options
of Stock Price Appreciation
Underlying
Granted to
Exercise
for Option Terms($)
Options
Employees in
Price
Expiration
Name
Granted(1)
Fiscal Year
($/Share)
Date
5%
10%
Matthew C. Diamond
—
—
—
—
—
—
James K. Johnson, Jr.
—
—
—
—
—
—
Samuel A. Gradess
—
—
—
—
—
—
Robert L. Bell
25,000
(1)
0.23
%
$
4.49
02/14/13
$
70,593
$
178,898
Robert Bernard
200,000
(2)
1.86
%
$
4.18
10/27/13
$
525,756
$
1,332,369
(1)
25,000 options were granted under the 1997 Plan
    and are non-qualified stock options. 6,250 options will become
    exercisable on each of February 14, 2004, 2005, 2006 and
    2007.
(2)
50,000 options will become exercisable on
    October 27, 2004, and 25,000 options will become
    exercisable every six months thereafter.
Option Exercises And Year-End Option
Values
The following table provides information
regarding the exercises of options by each of the named
executive officers during the fiscal year ended January 31,
2004. In addition, this table includes the number of shares
covered by both exercisable and unexercisable stock options as
of January 31, 2004 and the values of
"in-the-money" options, which values represent the
positive spread between the exercise price of any such option
and the fiscal year-end value of the Common Stock.
Number of Securities
Value of the Unexercised In-
Shares
Underlying Unexercised
The-Money Options at Fiscal
Acquired
Options at Fiscal Year-End
Year-End(2)
on
Value
Name
Exercise
Realized(1)
Exercisable
Unexercisable
Exercisable
Unexercisable
Matthew C. Diamond
—
—
190,000
60,000
—
—
James K. Johnson Jr.
—
—
190,000
60,000
—
—
Samuel A. Gradess
—
—
190,000
60,000
—
—
Robert R. Bell
—
—
122,500
114,500
—
$
20,500
Robert Bernard
—
—
—
200,000
$
226,000
(1)
Amounts shown in this column do not necessarily
    represent actual value realized from the sale of the shares
    acquired upon exercise of the option because in many cases the
    shares are not sold on exercise but continue to be held by the
    executive officer exercising the option. The amounts shown
    represent the difference between the option exercise price and
    the market price on the date of exercise, which is the amount
    that would have been realized if the shares had been sold
    immediately upon exercise.
55
(2)
The value of unexercised in-the-money options at
    fiscal year-end assumes a fair market value for our Common Stock
    of $5.31 per share, which was the closing sale price of our
    Common Stock, as reported on the Nasdaq National Market System
    on January 30, 2004.
Employment Contracts and Change of Control
Arrangements
We entered into employment agreements with
Matthew C. Diamond, James K. Johnson and Samuel A. Gradess on
April 19, 1999. We entered into new employment agreements
with Messrs. Diamond and Johnson on February 1, 2004.
For the fiscal year ended January 31, 2004,
Messrs. Diamond, Johnson and Gradess each received annual
base salaries of $400,000. The annual salaries for each of
Messrs. Diamond, Johnson and Gradess have been set by the
Compensation Committee at $400,000 for the fiscal year ending
January 31, 2005.
The agreement with Mr. Gradess provides
that, if we terminate him without "Cause," as defined
in the agreement, he will be entitled to severance pay equal to
his annual base salary, payable in equal monthly installments,
for a period of 12 months from the date of termination. If
his termination is voluntary, for cause or as a result of death
or disability, we have no obligation to pay severance to
Mr. Gradess beyond his accrued base salary and bonus up to
the date of termination. Upon a change in control of Alloy, all
of the options granted to Mr. Gradess will accelerate and
vest immediately. As of June 30, 2004, Mr. Gradess
held options to purchase 250,000 shares of our Common
Stock, of which 220,000 were vested.
The Agreements with Messrs. Diamond and
Johnson provide that, if we terminate them without
"Cause" (as defined in their agreements) or if they
terminate their employment for "Good Reason" (as
defined in their agreements), we will be obligated to
(i) continue to pay them an amount equal to their base
salary (as then in effect) for a period of one year or until the
end of the term of the employment agreement, whichever is
longer, (ii) a cash bonus equal to the amount of the cash
bonus paid to them in the prior year, and (iii) a
"gross up" amount to offset any excise tax to which
their compensation may be subject. If the termination of
Messrs. Diamond or Johnson are for "Cause",
without "Good Reason" or as a result of their death or
disability, we have no obligation to pay them severance beyond
their accrued base salary and bonus up to the date of their
termination. All of the options granted to Messrs. Diamond
and Johnson will accelerate and vest immediately, and all
repurchase rights of Alloy with respect to shares of restricted
stock held by Messrs. Diamond and Johnson will lapse
immediately, upon a change of control of Alloy or if
Messrs. Diamond and Johnson are terminated without Cause or
they terminate their employment for Good Reason. As of
June 30, 2004, each of Messrs. Diamond and Johnson
held options to purchase 250,000 shares of our Common
Stock, of which 220,000 were vested.
In July 2000, we entered into an offer letter
with Robert L. Bell, our Chief Technology Officer. During the
fiscal year ended January 31, 2004, Mr. Bell's
annual base salary was increased to $318,000 and he was eligible
for an annual bonus. Mr. Bell's annual base salary has
not yet been raised for the fiscal year ending January 31,
2005. In the offer letter, we agreed to grant Mr. Bell
options to purchase 150,000 shares of our Common
Stock. If Messrs. Diamond, Johnson and Gradess depart the
management of Alloy, the options granted to Mr. Bell shall
accelerate and vest immediately. As of June 30, 2004,
Mr. Bell held options to purchase 237,000 shares
of our Common Stock, of which options to purchase
133,250 shares of our Common Stock were vested as of the
date of this prospectus.
In October 2003, we entered into an offer letter
with Robert Bernard, our Chief Executive Officer of Retail and
Direct Consumer Division. Mr. Bernard's annual salary
for the fiscal year ended January 31, 2004 was $600,000,
plus a potential bonus. Mr. Bernard's annual base
salary has not been increased for the fiscal year ending
January 31, 2005. In the offer letter, we agreed to grant
to Mr. Bernard options to purchase an aggregate of
200,000 shares of our Common Stock, none of which had
vested as of January 31, 2004. If Mr. Bernard is
terminated other than for "Cause" (as defined in the
offer letter) prior to October 27, 2005, he will be
entitled to receive severance pay equal to the amount of salary
payable to him under the offer letter through October 27,
2005.
56
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Common Stock Offering
On April 14, 2000, we consummated a
financial and strategic arrangement with Liberty Digital, Inc.,
a subsidiary of Liberty Media Group, Inc., pursuant to which we
issued 2,922,694 shares of our Common Stock to a subsidiary
of Liberty Digital in exchange for $10 million in cash and
837,740 shares of Liberty Digital Common Stock. In
addition, in connection with the transaction, we appointed Lee
Masters, Liberty Digital's President and Chief Executive
Officer, to fill a newly created vacancy on our Board of
Directors. As of March 1, 2001, Mr. Masters resigned
from the Board and the directors elected Mr. Edward
Monnier, to serve the remainder of Mr. Masters' term,
which expired last year. Mr. Monnier was re-elected to the
Board of Directors at our 2001 Annual Meeting and has been
nominated for re-election at our 2004 Annual Meeting.
Other Transactions
Joseph Diamond, brother of Matthew Diamond, our
Chairman and Chief Executive Officer, is employed as Vice
President, Database Management of our 360 Youth division. Joseph
Diamond's annual base salary for the fiscal year ended
January 31, 2004 was $105,000. He received options to
purchase a total of 4,000 shares of our Common Stock during
the fiscal year ended January 31, 2004. As of
January 31, 2004, Joseph Diamond held options to purchase
an aggregate of 43,848 shares of Common Stock, of which
options to purchase 29,348 shares were exercisable on
such date at varying grant prices.
David Diamond, another brother of Matthew
Diamond, our Chairman and Chief Executive Officer, is employed
as Director, Human Resources of our Merchandise Division. David
Diamond's annual base salary for the fiscal year ended
January 31, 2004 was $150,000. On January 5, 2004, his
date of hire, he received options to
purchase 15,000 shares of our Common Stock, 3,750 of
which vest on each of January 5, 2005, 2006, 2007 and 2008.
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables set forth certain
information regarding the beneficial ownership of our common
stock as of June 30, 2004 by:
•
the executive officers named in the summary
    compensation table;
•
each of our directors;
•
all of our current directors and executive
    officers as a group;
•
each stockholder known by us to own beneficially
    more than and five percent of our common stock;
•
each securityholder selling securities in this
    offering.
Selling
Debentureholders.
We originally issued
and sold the debentures to the initial debenture purchasers in
private placement transactions exempt from the registration
requirements of the Securities Act. The debentures were
immediately resold by the initial purchasers in transactions
exempt from registration under Rule 144A under the
Securities Act to persons reasonably believed by the initial
purchasers to be "qualified institutional buyers"
under Rule 144A. Selling debentureholders, which term
includes their transferees, pledgees, donees and successors, may
from time to time offer and sell the debentures and the common
stock into which the debentures are convertible pursuant to this
prospectus and any applicable prospectus supplement.
Selling
Stockholders.
The selling stockholders
acquired and may acquire the shares being registered hereby in
connection with our acquisition of InSite. Selling stockholders,
which term includes their transferees, pledgees, donees and
successors, may from time to time offer and sell the common
stock pursuant to this prospectus and any applicable prospectus
supplement.
Selling
Securityholders.
As used herein, the
term selling securityholders means the selling debentureholders
and the selling stockholders. The following table sets forth
certain information by the named selling
57
securityholders, as of the date they completed a
selling securityholder questionnaire (dates ranging from
August 20, 2003 to June 30, 2004), with respect to the
principal amount of debentures beneficially owned and the number
of shares of common stock issuable upon conversion of those
debentures, for the selling debentureholders, and with respect
to the number of shares of common stock, with respect to the
selling stockholders, that may be offered from time to time
under this prospectus by the selling securityholders named in
the table. This information is based on information provided by
or on behalf of the selling securityholders. The selling
securityholders may offer all, a portion or none of the
securities offered hereby. Because the selling securityholders
may offer all or a portion of their securities, we cannot
estimate the amount of securities that will be held by the
selling securityholders upon termination of any of these sales.
In addition, selling securityholders identified below may have
sold, transferred or otherwise disposed of all or a portion of
their securities since the date on which they provided the
information regarding their securities in transactions exempt
from the registration requirements of the Securities Act. The
percentage of debentures outstanding beneficially owned by each
selling debentureholder is based on $69,300,000 aggregate
principal amount of debentures outstanding. The number of shares
of common stock owned prior to the offering does not include,
with respect to the selling debentureholders, shares of common
stock issuable upon conversion of the debentures.
The percentage of common stock outstanding
beneficially owned by each selling securityholder is based on
42,969,586 shares of common stock outstanding on
June 30, 2004. The number of shares of common stock
issuable upon conversion of the debentures offered hereby is
based on an initial conversion price of $8.375 per share.
This conversion rate is subject to adjustment as described under
"Description of the debentures — Conversion
Rights." Accordingly, the number of conversion shares may
increase or decrease from time to time. Under the terms of the
indenture, fractional shares will not be issued upon conversion
of the debentures, but will be paid in cash.
Beneficial ownership is determined in accordance
with the rules of the SEC and includes voting or investment
power with respect to the securities. Except where indicated in
the footnotes below, the address for each director and executive
officer listed is: c/o Alloy, Inc., 151 West 26th Street,
11th Floor, New York, New York 10001. Shares of Common Stock
that may be acquired by an individual or group within
60 days of June 30, 2004, pursuant to the exercise of
options or warrants or conversion of convertible securities are
deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
Except as indicated in footnotes to this table, we believe that
the stockholders named in this table have sole voting and
investment power with respect to all shares of Common Stock
shown to be beneficially owned by them based on information
provided to us by such stockholders. Percentage of ownership is
based on
58
42,969,586 shares of Common Stock and
1,340 shares of Series B Preferred Stock outstanding
on June 30, 2004.
Shares Beneficially Owned
Series B
Common Shares
Preferred Shares
Name of Beneficial Owner
Number
Percent(%)
Number
Percent(%)
Executive Officers and Directors
Matthew C. Diamond
1,373,600
(1)
3.18
%
—
—
James K. Johnson, Jr.
1,373,600
(1)
3.18
%
—
—
Samuel A. Gradess
1,373,600
(1)
3.18
%
—
—
Robert L. Bell
143,214
(2)
*
—
—
Peter M. Graham
140,996
(3)
*
30
2.24
%
Edward Monnier
10,719
(4)
*
—
—
Anthony N. Fiore
24,300
*
—
—
Robert Bernard
100
(5)
*
—
—
All current directors and executive officers as a
    group (9 persons)
4,440,111
10.11
%
30
2.24
%
Five Percent Stockholders
Fletcher Asset Management, Inc.(12)
2,673,060
(6)
6.08
%
—
—
LDIG Aloy, Inc.(7)(12)
2,922,694
6.80
%
—
—
Kern Capital Management, LLC(8)(12)
2,846,400
6.62
%
—
—
MLF Investments, LLC(12)
4,789,008
(9)
11.15
%
—
—
MLF Partners, L.P.(10)(12)
4,042,340
9.41
%
—
—
Matthew L. Feshbach(12)
4,789,008
(11)
11.15
%
—
—
*
Less than 1%.
(1)
Includes (i) 220,000 shares currently
    obtainable upon the exercise of options, and
    (ii) 100,000 shares granted as restricted stock under
    the Company's Amended and Restated 1997 Employee, Director
    and Consultant Stock Option and Stock Incentive Plan (as
    amended, the "1997 Plan"), of which the Company has
    the right to repurchase 50,000 shares under certain
    circumstances outlined in a restricted stock agreement between
    the grantee and the Company. The Company's repurchase right
    as to these 50,000 shares will lapse on January 31,
    2005.
(2)
Includes (i) 133,250 shares currently
    obtainable upon the exercise of options.
(3)
Consists of (i) 97,501 currently
    obtainable upon the exercise of options;
    (ii) 938 shares obtainable upon the exercise of
    options exercisable within sixty (60) days of June 30,
    2004; (iii) 30 shares of Series B Preferred Stock
    held by the Peter M. Graham Money Purchase Plan & Trust
    and convertible into 30,251 shares as of June 30,
    2004; (iv) 8,306 shares subject to a currently
    exercisable warrant held by the Peter M. Graham Money Purchase
    Plan & Trust (Mr. Graham is a trustee of the Peter
    M. Graham Money Purchase Plan & Trust and has voting
    and investment power over its shares); and
    (v) 4,000 shares granted as restricted stock under the
    1997 Plan, which shares are subject to the Company's right
    of repurchase in certain circumstances outlined in a restricted
    stock agreement between the grantee and the Company. The
    Company's right of repurchase with respect to the
    4,000 shares of restricted stock granted under the 1997
    Plan lapses with respect to 1,000 shares on July 24,
    2004, with respect to an additional 1,000 shares on
    July 24, 2005, with respect to an additional
    1,000 shares on July 24, 2006, and with respect to all
    4,000 shares on July 24, 2007. Additionally,
    Mr. Graham has no pecuniary interest in the shares held in
    the Trust and therefore expressly disclaims beneficial ownership
    of those shares.
(4)
Consists of (i) 6,250 shares currently
    obtainable upon the exercise of options;
    (ii) 469 shares obtainable upon the exercise of
    options exercisable within sixty (60) days of June 30,
    2004; and (iii) 4,000 shares granted as restricted
    stock under the 1997 Plan, which shares are subject to the
    Company's right of repurchase in certain circumstances
    outlined in a restricted stock agreement between the grantee and
    the
59
Company. The Company's right of repurchase
    with respect to the 4,000 shares of restricted stock
    granted under the 1997 Plan lapses with respect to
    1,000 shares on July 24, 2004, with respect to an
    additional 1,000 shares on July 24, 2005, with respect
    to an additional 1,000 shares on July 24, 2006, and
    with respect to all 4,000 shares on July 24, 2007.
(5) Consists of 100 shares owned by
Mr. Bernard's daughter.
(6)
Includes 1,019,291 shares subject to a
    currently exercisable warrant. Fletcher Asset Management, Inc.
    is located at 22 East 67th Street, New York, NY 10021.
(7)
Liberty Media Corporation, the ultimate parent of
    LDIG ALOY, Inc., has sole voting and investment power with
    respect to these shares. The address for LDIG ALOY, Inc. is
    12300 Liberty Boulevard, Englewood, CO 80112.
(8)
Kern Capital Management, LLC is located at 114
    West 47th Street, Suite 1926, New York, NY 10036.
(9)
Includes 4,042,340 shares owned by MLF
    Partners, L.P., a limited partnership organized and existing
    under the laws of the State of Delaware; and 746,668 shares
    owned by MLP Offshore Portfolio Company, L.P., a limited
    partnership organized and existing under the laws of the Cayman
    Islands. MLF Investments, LLC is located at 2401 West Bay Drive,
    Suite 124, Largo, Florida 33770.
(10)
MLF Partners, L.P. is located at 2401 West Bay
    Drive, Suite 124, Largo, Florida 33770.
(11)
Includes 4,042,340 shares owned by MLF
    Partners, L.P., a limited partnership organized and existing
    under the laws of the State of Delaware; and 746,668 shares
    owned by MLP Offshore Portfolio Company, L.P., a limited
    partnership organized and existing under the laws of the Cayman
    Islands. Matthew Feshbach's business address is 2401 West
    Bay Drive, Suite 124, Largo, Florida 33770.
(12)
The information in this table with respect to
    Fletcher Asset Management, Inc., LDIG Aloy, Inc., Kern Capital
    Management, LLC, MLF Investment, LLC, MLF Partners, L.P. and
    Matthew L. Feshbach is based on filings on Schedule 13D or
    Schedule 13G made by each with the SEC.
SELLING SECURITYHOLDERS
Selling Debentureholders
Principal Amount of
Number of Shares
Percentage of
Debentures
Percentage of
of Common Stock
Conversion Shares
Common
Beneficially Owned
Debentures
Beneficially Owned
Being Offered
Stock
Name
and Offered Hereby
Outstanding(a)
Prior to Offering(1)
Hereby(2)
Outstanding(3)
Alexandra Global Master Fund, Ltd
$
16,115,000
23.25
%
—
1,924,179
4.29
Arkansas PERS
1,060,000
1.53
—
126,567
*
Boilermakers Blacksmith Pension Trust
1,325,000
1.91
—
158,208
*
Delaware PERS
1,490,000
2.15
—
177,910
*
Delta Airlines Master Trust
600,000
0.87
—
71,641
*
Duke Endowment
255,000
0.37
—
30,447
*
ICI American Holdings Trust
340,000
0.49
—
40,597
*
Prudential Insurance Co. of America
90,000
0.13
—
10,746
*
Southern Farm Bureau Life Insurance
775,000
1.12
—
92,537
*
State of Oregon/ Equity
4,700,000
6.78
—
561,194
1.31
Syngenta AG
250,000
0.36
—
29,850
*
Zeneca Holdings Trust
465,000
0.67
—
55,522
*
All other holders of debentures or future
    transferees, pledgees or donees of such holders(4)(5)
19,635,000
28.33
—
2,344,477
5.17
*
Indicates a less than 1% interest in common stock.
(a)
Percentages may not sum due to rounding.
(1)
Does not include shares of common stock issuable
    upon conversion of the debentures.
60
(2)
Consists of shares of common stock issuable upon
    conversion of the debentures, assuming a conversion rate of
    119.403 shares per $1,000 principal amount of debentures
    (which represents a conversion price of approximately
    $8.375 per shares). The conversion price is subject to
    adjustment as described above under "Description of the
    Debentures — Conversion Rate Adjustments."
(3)
Calculated based on Rule 13d-3(d)(1)(i)
    under the Securities Exchange Act of 1934, as amended, using
    42,969,586 shares outstanding on June 30, 2004. In
    calculating this amount for each holder, we treated as
    outstanding the number of shares of common stock issuable upon
    conversion of such holder's debentures. However, we did not
    assume the conversion of any other holder's debentures.
(4)
We will identify additional selling
    securityholders, if any, by prospectus supplement or
    post-effective amendment before they offer or sell their
    securities.
(5)
Assumes that all holders of debentures, or any
    future transferees, pledgees, donees or successors of or from
    such holders of debentures, do not beneficially own any common
    stock other than the common stock issuable upon conversion of
    the debentures at the initial conversion rate.
Selling Stockholders
Number of Shares
Number of Shares
Beneficially Owned
Shares Being
After Completion of
Prior to Offering
Offered
This Offering (1)
Marc Miller
–
850,009
(2)
0*
New York Small Business Venture Fund, LLC
–
160,578
(3)
0*
David Dorfman
–
112,721
(4)
0*
Mill Neck Capital LLC
–
81,538
(5)
0*
Peter Connell
–
22,995
(6)
0*
Craig Schlanger
–
17,770
(7)
0*
Neil Miller
–
3,679
(8)
0*
Joan Miller
–
711
(9)
0*
*
Indicates a less than 1% interest in common stock.
(1)
The numbers assume that the selling stockholders
    have sold all of the shares offered hereby prior to completion
    of this Offering.
(2)
Includes 456,852 shares potentially issuable
    in connection with our agreement, as part of our acquisition of
    InSite, to make certain payments to the former stockholders of
    InSite if our stock price, averaged over the 20 trading
    days ending on the date prior to the date on which the
    registration statement of which this prospectus is a part
    becomes effective is less than $5.22 (the ("Revaluation
    Shares") and 249,566 shares potentially issuable in
    connection with our agreement, as part of our acquisition of
    InSite, to make certain additional payments, in cash and/or
    stock, of up to $5 million in the aggregate to the former
    stockholders of InSite if certain earnings targets are met (the
    "Earn-Out Shares").
(3)
Includes 61,093 shares potentially issuable
    as Earn-Out Shares.
(4)
Includes 48,862 shares potentially issuable
    as Earn-Out Shares.
(5)
Includes 33,161 shares potentially issuable
    as Earn-Out Shares.
(6)
Includes 8,708 shares potentially issuable
    as Revaluation Shares and 7,637 shares potentially issuable
    as Earn-Out Shares.
(7)
Includes 7,637 shares potentially issuable
    as Earn-Out Shares.
(8)
Includes 1,393 shares potentially issuable
    as Revaluation Shares and 1,222 shares potentially issuable
    as Earn-Out Shares.
(9)
Includes 305 shares potentially issuable as
    Earn-Out Shares.
Information concerning the selling
securityholders may change from time to time and any changed
information will be set forth in supplements to this prospectus
if and when necessary.
Unless set forth below, to our knowledge none of
the selling securityholders has had a material relationship with
us or any of our affiliates within the past three years.
61
DESCRIPTION OF CAPITAL STOCK
The description of our capital stock and certain
provisions of our restated certificate of incorporation, as
amended, and our restated bylaws is a summary and is qualified
in its entirety by the provisions of our restated certificate of
incorporation, as amended and our restated bylaws. The following
summary of certain provisions of our common stock and preferred
stock is not complete and may not contain all the information
you should consider before investing in the debentures or common
stock. We encourage you to read our restated certificate of
incorporation and our shareholder rights agreement that creates
the rights to acquire shares of our preferred stock upon the
occurrence of certain events because they, and not this summary,
define the rights of holders of our common stock and the
associated rights. We have filed our restated certificate of
incorporation and our shareholder rights agreement with the SEC.
See "Where You Can Find More Information" for
information on how to obtain these documents.
Description of Common Stock
The description of our capital stock and certain
provisions of our restated certificate of incorporation, as
amended, and our restated bylaws is a summary and is qualified
in its entirety by the provisions of our restated certificate of
incorporation, as amended and our restated bylaws.
We are authorized to issue
200,000,000 shares of common stock, $0.01 par value
per share. As of June 30, 2004, there were approximately
42,969,586 shares of common stock outstanding.
Each share of our common stock is entitled to one
vote on every matter properly submitted to the stockholders for
their vote. After satisfaction of the dividend rights of holders
of any preferred stock, holders of common stock are entitled to
any dividend declared by our board out of funds legally
available for that purpose. After the payment of liquidation
preferences to holders of any preferred stock, holders of common
stock are entitled to receive, on a pro rata basis, all our
remaining assets available for distribution to stockholders in
the event of our liquidation, dissolution or winding up. Holders
of common stock do not have any preemptive right to become
subscribers or purchasers of additional shares of any class of
our capital stock. The rights, preferences and privileges of
holders of common stock are subject to, and may be injured by,
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
Description of Preferred Stock
We are authorized to issue, without stockholder
approval, up to 10,000,000 shares of preferred stock,
$0.01 par value per share, having rights senior to those of
our common stock. As of June 30, 2004, we had authorized
the issuance of 3,000 shares of Series B convertible
preferred stock (the "Series B Preferred Stock"),
of which 1,340 shares were outstanding,
1,850,000 shares of Series A convertible preferred
stock, none of which were outstanding, and 1,000,000 shares
of Series C junior participating preferred stock (the
"Series C Preferred Stock"), none of which were
outstanding.
Each share of Series B Preferred Stock has
an initial stated value and liquidation preference of $10,000,
which accrues interest on a daily basis at a rate of
5.5% per year, compounded quarterly. Except as required by
the Delaware General Corporate Law, the holders of the
Series B Preferred Stock are not entitled to any vote on
matters on which the holders of common stock vote. Each share of
Series B Preferred Stock may be converted into shares of
our common stock at anytime by its holder. The conversion price
initially is $11.70, and is subject to adjustment if we split
our common stock into a greater number of shares, combine our
stock into a lesser number of shares or if we agree to sell more
than 50% of our outstanding shares, any person announces a
tender offer for more than 50% of our outstanding shares or we
agree to sell all or substantially all of our assets. If we
issue, or are deemed to issue, shares of our common stock after
December 15, 2002 at a price below the closing bid price of
our common stock on the day immediately prior to issuance or
deemed issuance of such common stock, the conversion price will
be reduced to reflect the weighted-average of the dilution
caused by such issuance or deemed issuance. The holders of the
Series B Preferred Stock may require that we redeem their
shares for cash if our stock is delisted from trading on the
NASDAQ or certain other negative events occur. In addition, we
must
62
redeem any outstanding shares of the
Series B Preferred Stock on the stated maturity date,
June 15, 2005, by converting such shares into shares of
common stock or redeeming them for cash.
Our board of directors is authorized to issue
additional shares of preferred stock in one or more series and
to fix and designate the rights, preferences, privileges and
restrictions of the preferred stock, including:
•
dividend rights;
•
conversion rights;
•
voting rights;
•
redemption rights and terms of
    redemption; and
•
liquidation preferences.
Our board may fix the number of shares
constituting any series and the designations of these series.
The rights, preferences, privileges and restrictions of the
preferred stock of each series will be fixed by a certificate of
designation relating to each series.
Our issuance of preferred stock may have the
effect of delaying or preventing a change in control. Our
issuance of preferred stock could decrease the amount of
earnings and assets available for distribution to the holders of
common stock or could adversely affect the rights and powers,
including voting rights, of the holders of common stock. The
issuance of preferred stock could have the effect of decreasing
the market price of our common stock.
Delaware Law and Certain Charter and By-law
provisions
The provisions of Delaware law and of our
restated certificate of incorporation, as amended, and restated
by-laws discussed below could discourage or make it more
difficult to accomplish a proxy contest or other change in our
management or the acquisition of control by a holder of a
substantial amount of our voting stock. It is possible that
these provisions could make it more difficult to accomplish, or
could deter, transactions that stockholders may otherwise
consider to be in their best interests or our best interests.
Delaware Statutory Business Combinations
Provision.
In general,
Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an
"interested stockholder" for a period of three years
after the date of the transaction in which the person became an
interested stockholder, unless the business combination is, or
the transaction in which the person became an interested
stockholder was, approved in a prescribed manner or another
prescribed exception applies. For purposes of Section 203,
a "business combination" is defined broadly to include
a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and, subject to
certain exceptions, an "interested stockholder" is a
person who, together with his or her affiliates and associates,
owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
Classified Board of
Directors.
Our board of directors is
divided into three classes. Each year our stockholders elect the
members of one of the three classes to a three-year term of
office. All directors elected to our classified board of
directors serve until the election and qualification of their
respective successors or their earlier resignation or removal.
Only the board of directors is authorized to create new
directorships and to fill such positions so created and is
permitted to specify the class to which any such new position is
assigned. The person filling such position would serve for the
term applicable to that class. Only the board of directors (or
its remaining members, even if less than a quorum) is empowered
to fill vacancies on the board of directors occurring for any
reason for the remainder of the term of the class of directors
in which the vacancy occurred. Members of the board of directors
may only be removed for cause. These provisions are likely to
increase the time required for stockholders to change the
composition of the board of directors. For example, in general,
at least two annual meetings would be necessary for stockholders
to effect a change in a majority of the members of the board of
directors.
Advance Notice Provisions for Stockholder
Proposals and Stockholder Nominations of
Directors.
Our restated by-laws
provide that, for nominations to the board of directors or for
other business to be properly
63
brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely
notice of the proposal in writing to our Secretary. For an
annual meeting, a stockholder's notice generally must be
delivered not less than 45 days nor more than 75 days
prior to the anniversary of the mailing date for proxy materials
relating previous year's annual meeting or, if the date of
the annual meeting is held more than 30 days before or
60 days after the date of the previous year's annual
meeting, such notice must be delivered before the later of
90 days prior to the date of the annual meeting and
10 days after the date of the meeting is announced
publicly. For a special meeting, the notice must generally be
delivered by the later of 90 days prior to the special
meeting or ten days following the day on which public
announcement of the meeting is first made. Detailed requirements
as to the form of the notice and information required in the
notice are specified in our restated by-laws. If it is
determined that business was not properly brought before a
meeting in accordance with our by-law provisions, such business
will not be conducted at the meeting.
Special Meetings of
Stockholders.
Special meetings of the
stockholders may be called only by the entire board of directors
pursuant to a resolution adopted by a majority of the total
number of authorized directors.
No Stockholder Action by Written
Consent.
Our restated certificate of
incorporation, as amended, does not permit our stockholders to
act by written consent. As a result, any action to be effected
by our stockholders must be effected at a duly called annual or
special meeting of the stockholders.
Super-Majority Stockholder Vote Required to
Amend our By-laws.
The Delaware
General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter
is required to amend a corporation's certificate of
incorporation or by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. Our restated certificate of
incorporation, as amended, requires a 70% vote for any amendment
to, or repeal of, our restated by-laws by the stockholders. Our
restated by-laws may be amended or repealed by a simple majority
vote of the board of directors.
Rights Plan
On April 9, 2003, our board of directors
declared a dividend of one preferred stock purchase right (a
"Right") for each outstanding share of our common
stock, to stockholders of record at the close of business on
April 28, 2003 (the "record date"). Each Right
entitles the registered holder to purchase from us a unit
consisting of one one-hundredth of a share (a "Unit")
of Series C preferred stock, at a purchase price of
$40.00 per Unit (the "Purchase Price"), subject
to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement")
between the Company and American Stock Transfer & Trust
Company, as Rights Agent.
Initially, the Rights will be attached to all
common stock certificates representing shares then outstanding,
and no separate Rights certificates will be distributed. The
Rights will separate from the common stock and a
"Distribution Date" will occur upon certain specified
events.
The Rights are not exercisable until the
Distribution Date and will expire at the close of business on
April 14, 2013, unless we earlier redeem or exchange them
as described below.
If any person becomes an Acquiring Person (as
defined in the Rights Agreement), also known as a
"Section 11(a)(ii) Event", each holder of a Right
(other than the Acquiring Person) will thereafter have the right
to receive, upon exercise, that number of shares of common stock
(or, in certain circumstances, cash, property or other of our
securities) which equals the exercise price of the Right divided
by one-half of the current market price (as defined in the
Rights Agreement) of the common stock at the date of the
occurrence of the event.
If, at any time following a
Section 11(a)(ii) Event, (i) we are acquired in a
merger or other business combination transaction or
(ii) more than 50% of our assets or earning power is sold
or transferred, each holder of a Right (except Rights which
previously have been voided as set forth above) shall thereafter
have the right to receive, upon exercise, that number of shares
of common stock (or other specified equity securities) of the
acquiring company which equals the exercise price of the Right
divided by one-half of the current market price (as defined in
the Rights Agreement) of such common stock (or other specified
equity securities) at the date of the occurrence of the event.
64
At any time after the occurrence of a
Section 11(a)(ii) Event, our Board may exchange the Rights
(other than Rights owned by an Acquiring Person which have
become void), in whole or in part, at an exchange ratio of one
share of common stock, or one Common Stock Equivalent (as
defined in the Rights Agreement), per Right (subject to
adjustment).
The Purchase Price payable, and the number of
units of Series C preferred stock or other securities or
property issuable, upon exercise of the Rights are subject to
adjustment from time to time under certain circumstances set
forth in the Rights Agreement. With certain exceptions, no
adjustment in the Purchase Price will be required until
cumulative adjustments amount to at least 1% of the Purchase
Price.
We may redeem the Rights in whole, but not in
part, at any time before a Section 11(a)(ii) Event, at a
price of $.001 per Right (payable in cash, common stock or
other consideration deemed appropriate by our Board).
Immediately upon the action of the Board ordering redemption of
the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.001 per Right
redemption price. The redemption price is payable in cash, stock
or other consideration deemed appropriate by the Board.
Until a Right is exercised, the holder thereof,
as such, will have no rights as one of our stockholders,
including, without limitation, the right to vote or to receive
dividends. While the distribution of the Rights will not be
taxable to stockholders or to us, stockholders may, depending
upon the circumstances, recognize taxable income if the Rights
become exercisable for common stock (or other consideration) of
ours or for common stock of the acquiring company as set forth
above.
Subject to certain exceptions, any of the
provisions of the Rights Agreement may be amended by the Board
of Directors prior to such time as the Rights are no longer
redeemable.
Transfer Agent And Registrar
American Stock Transfer & Trust Company
is the transfer agent and registrar for our Common Stock.
Nasdaq National Market Listing
Our Common Stock is listed on the Nasdaq National
Market under the trading symbol "ALOY".
DESCRIPTION OF THE DEBENTURES
We issued the debentures under an indenture
between us and Deutsche Bank Trust Company Americas, as trustee.
The terms of the debentures include those stated in the
indenture and those made part of the indenture by reference to
the Trust Indenture Act of 1939. The trustee initially will act
as paying agent, conversion agent and transfer agent under the
indenture.
The following summary does not purport to be
complete, and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the debentures and the
indenture. We urge you to read the indenture, the form of the
debentures and the registration rights agreement, which we have
filed with the SEC. See "Where You Can Find More
Information" for information on how to obtain these
documents.
The registered holder of a debenture will be
treated as the owner of it for all purposes. Only registered
holders will have rights under the indenture.
When we refer to "the company,"
"we," "our" or "us" in this
section, we refer only to Alloy, Inc., and not our subsidiaries.
Brief Description of the Debentures
The debentures to be offered by the selling
securityholders pursuant to this prospectus:
•
are limited to $47,100,000 aggregate principal
    amount;
•
bear interest at a rate of 5.375% per year;
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•
bear additional interest, which we refer to as
    "additional interest," if we fail to comply with
    certain obligations set forth below under
    "— Registration Rights;"
•
are senior unsecured obligations, ranking equally
    with all of our existing and future senior unsecured
    indebtedness and senior in right of payment to any subordinated
    indebtedness, but as indebtedness of the Company, the debentures
    are effectively subordinated to all existing and future
    indebtedness and liabilities of our subsidiaries;
•
are convertible into our common stock at an
    initial conversion price of $8.375 per share, subject to
    adjustment as described below under "— Conversion
    Rights," in the following circumstances:
(A) if the market price (as defined below)
    of our common stock is above 110% of the conversion price
    measured over a specified number of trading days;
(B) on or before August 1, 2018, if the
    ratio of the trading price (as defined below) of the debentures
    to the conversion value of the debentures is below 98% measured
    over a specified number of trading days; or
(C) upon the occurrence of specified
    corporate transactions;
•
are redeemable by us at our option at any time
    and from time to time after August 1, 2008, in whole or in
    part, at the redemption prices specified below under
    "— Optional Redemption;"
•
are subject to repurchase by us at your option on
    August 1, 2008, 2013 and 2018 or if a change of control
    occurs as set forth below under "— Repurchase at
    Option of Holders;" and
•
are due on August 1, 2023, unless earlier
    redeemed by us at our option, or converted or repurchased by us
    at your option.
The indenture does not contain any financial
covenants and does not restrict us or our subsidiaries from
paying dividends, incurring additional senior debt or any other
indebtedness or issuing or repurchasing other securities. In
addition, the indenture does not protect the holders in the
event of a highly leveraged transaction or a change in control
except to the extent described below under
"— Repurchase at Option of Holders —
Change of Control Put."
If a taxable distribution to holders of our
common stock or other transaction occurs that results in any
adjustment of the conversion price (including an adjustment at
our option), the holders may, in certain circumstances, be
deemed to have received a distribution subject to
U.S. income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a
taxable dividend to the holders of our common stock.
No sinking fund is provided for the debentures.
The debentures will not be subject to defeasance although we may
redeem the debentures at any time or from time to time after
August 1, 2008 as provided below under
"— Optional Redemption."
The debentures are issued only in registered form
in denominations of $1,000 and any integral multiple of $1,000
above that amount. No service charge will be made for any
registration of transfer or exchange of debentures, but we may
require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Holders may present definitive debentures for
conversion, registration of transfer and exchange, without
service charge, at our office or agency in New York City, which
shall initially be the office or agency of the trustee in New
York City. For information regarding conversion, registration of
transfer and exchange of global securities, see
"— Form, Denomination and Registration."
Holders may not sell or otherwise transfer the
debentures and the common stock issuable upon conversion of the
debentures except in compliance with the provisions set forth
below under "— Transfer Restrictions."
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Interest
The debentures bear interest from July 23,
2003 at the rate of 5.375% per year. We also will pay
additional interest if we fail to comply with certain
obligations set forth below under "— Registration
Rights."
We will pay interest semiannually on February 1
and August 1 of each year to the holders of record at the
close of business on the preceding February 1 and August 1,
respectively, beginning February 1, 2004. There are two
exceptions to the preceding sentence:
•
In general, we will not pay accrued and unpaid
    interest on any debentures that are converted into our common
    stock. See "— Conversion Rights." If a
    holder converts its debentures after a record date for an
    interest payment but prior to the corresponding interest payment
    date, it will receive interest accrued and paid on these
    debentures on the interest payment date, notwithstanding the
    conversion of the debentures prior to such interest payment
    date, because that holder will have been the holder of record on
    the corresponding record date. But, at the time such holder
    surrenders its debentures for conversion, it will be required to
    remit to us an amount equal to the interest that will be paid on
    the interest payment date.
•
We will pay interest to a person other than the
    holder of record on the record date if holders elect to require
    us to repurchase the debentures on a date that is after the
    record date and on or prior to the corresponding interest
    payment date. In this instance, we will pay accrued and unpaid
    interest on the debentures being repurchased to, but excluding,
    the repurchase date to the same person to whom we will pay the
    principal of these debentures.
Except as provided below, we will pay interest on:
•
the global securities to DTC in immediately
    available funds;
•
any definitive debentures having an aggregate
    principal amount of $5,000,000 or less by check mailed to the
    holders of these debentures; and
•
any definitive debentures having an aggregate
    principal amount of more than $5,000,000 by wire transfer in
    immediately available funds if requested by holder of those
    debentures.
At maturity, we will pay interest on the
definitive debentures at our office or agency in New York City,
which initially will be the office or agency of the trustee in
New York City.
We will pay principal on:
•
the global securities to DTC in immediately
    available funds; and
•
the definitive debentures at our office or agency
    in New York City, which initially will be the office or agency
    of the trustee in New York City.
Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Conversion Rights
General
Holders may convert any outstanding debentures
(or portions of outstanding debentures) into our common stock,
initially at the conversion price of $8.375 per share,
equal to a conversion rate of 119.4030 shares per $1,000
principal amount of debentures, under the circumstances
summarized below. The conversion price will be subject, however,
to adjustment as described below under
"— Conversion Price Adjustments." We will
not issue fractional shares of common stock upon conversion of
debentures. Instead, we will pay cash to holders in an amount
equal to the market value of that fractional share based upon
the market price of our common stock on the trading day
immediately preceding the conversion date. You may convert
debentures only in denominations of $1,000 and whole multiples
of $1,000.
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Holders may surrender debentures for conversion
into our common stock prior to the close of business on their
stated maturity date if any of the following conditions are
satisfied:
•
during any fiscal quarter, if the market price of
    our common stock for at least 20 trading days in the 30
    consecutive trading-day period ending on the last day of the
    preceding fiscal quarter was more than 110% of the conversion
    price on that thirtieth trading day;
•
on or before August 1, 2018, during the five
    business-day period following any 10 consecutive trading-day
    period in which the average trading price for the debentures for
    that 10 trading-day period was less than 98% of the average
    conversion value, as described below, for the debentures during
    that period; or
•
upon the occurrence of any of the corporate
    transactions summarized below under "— Conversion
    Upon Specified Corporate Transactions."
If a holder has exercised such holder's
right to require us to repurchase such holder's debentures
as described under "— Repurchase at Option of
Holders," such holder may convert its debentures into our
common stock only if it withdraws its notice of exercise of
repurchase and convert such holder's debentures prior to
the close of business on the applicable repurchase date.
However, if such holder is a holder of debentures that have been
called for redemption, it must exercise its conversion rights
prior to the close of business on the second business day
preceding the redemption date, unless we default in payment of
the redemption price.
Conversion Upon Satisfaction of Market
    Price Conditions
A holder may convert any of its debentures into
our common stock during any fiscal quarter if the market price
of our common stock for at least 20 consecutive trading days in
the 30 trading-day period ending on the last day of the
preceding fiscal quarter exceeds 110% of the conversion price on
that thirtieth trading day. The conversion price per share of
common stock as of any day equals the quotient of the principal
amount of a debenture divided by the number of shares of common
stock issuable upon conversion of such debentures on that day.
On or before August 1, 2018, a holder also
may convert its debentures into our common stock during the five
business-day period following any 10 consecutive trading-day
period in which the average of the trading prices for the
debentures for that 10 trading-day period was less than 98% of
the average conversion value for the debentures during that
period.
"Conversion value" is equal to the
product of the market price for our common stock on a given day
multiplied by the then current conversion rate, which is the
number of shares of common stock into which each debentures is
then convertible.
Conversion Upon Specified Corporate
    Transactions
If:
•
we distribute to all or substantially all holders
    of our common stock certain rights entitling them to purchase,
    for a period expiring within 60 days of the date of
    distribution, common stock at less than the market price of the
    common stock at the time of the announcement of that
    distribution;
•
we elect to distribute to all or substantially
    all holders of our common stock cash or other assets, debt
    securities or certain rights to purchase our securities, which
    distribution has a per share value exceeding 5% of the market
    price of the common stock on the day preceding the declaration
    date for the distribution; or
•
a change of control as described under
    "— Repurchase at Option of Holders —
    Change of Control Put" occurs but holders of debentures do
    not have the right to require us to repurchase their debentures
    as a result of such change of control because either
    (a) the market price of our common stock for a specified
    period prior to that change of control exceeds a specified level
    or (b) because the consideration received in the change of
    control consists of capital stock that is freely traded and the
    debentures become convertible
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into that capital stock, each as more fully
    described under "— Repurchase at Option of
    Holders — Change of Control Put,"
then we must notify the holders of debentures at
least 20 days prior to the ex-dividend date for the
distribution or within 20 business days of the occurrence of the
change of control, as the case may be. Once we have given that
notice, holders may convert their debentures at any time until
either (a) the earlier of close of business on the business
day prior to the ex-dividend date and our announcement that the
distribution will not take place, in the case of a distribution,
or (b) within 20 business days of the change of control
notice, in the case of a change of control. In the case of a
distribution, no adjustment to the ability of a holder of
debentures to convert will be made if the holder participates or
will participate in the distribution without conversion.
In addition, if we are party to a consolidation,
merger or binding share exchange pursuant to which our common
stock will be converted into cash, securities or other property,
a holder may convert debentures at any time from and after the
date which is 15 days prior to the anticipated effective
date of the transaction until 15 days after the effective
date of the transaction. If we are a party to a consolidation,
merger or binding share exchange pursuant to which our common
stock is converted into cash, securities or other property, then
at the effective time of the transaction, the right to convert
debentures into common stock will be changed into a right to
convert the debentures into the kind and amount of cash,
securities or other property which the holder would have
received if the holder had converted such debentures immediately
prior to the transaction. If the transaction also constitutes a
"change of control" (as defined below) the holder can
require us to repurchase all or a portion of its debentures as
described under "— Repurchase at Option of
Holders — Change of Control Put."
Conversion Procedures
Except as provided below, if a holder converts
its debentures into our common stock on any day other than an
interest payment date, such holder will not receive any interest
that has accrued on these debentures since the prior interest
payment date. By delivering to the holder the number of shares
issuable upon conversion, determined by dividing the principal
amount of the debentures being converted by the conversion
price, together with a cash payment, if any, in lieu of
fractional shares, we will satisfy our obligation with respect
to the converted debentures. That is, accrued but unpaid
interest will be deemed to be paid in full rather than canceled,
extinguished or forfeited.
If a holder converts after a record date for an
interest payment but prior to the corresponding interest payment
date, such holder will receive on the interest payment date
interest accrued and paid on such debentures, notwithstanding
the conversion of such debentures prior to such interest payment
date, because such holder will have been the holder of record on
the corresponding record date. But, at the time of surrender of
such debentures for conversion, such holder must pay us an
amount equal to the interest that will be paid on the debentures
being converted on the interest payment date. The preceding
sentence, however, does not apply to a holder that converts,
after a record date for an interest payment, but prior to the
corresponding interest payment date, debentures that we call for
redemption prior to such conversion on a redemption date that is
on or prior to the third business day after such interest
payment date. Accordingly, if we call such holder's
debentures for redemption on a date that is after a record date
for an interest payment but on or prior to the third business
day after the corresponding interest payment date, and prior to
the redemption date such holder chooses to convert your
debentures, such holder will receive on the date that has been
fixed for redemption the amount of interest it would have
received if it had not converted its debentures.
A holder will not be required to pay any transfer
taxes or duties relating to the issuance or delivery of our
common stock if it exercises your conversion rights, but a
holder will be required to pay any transfer tax or duties which
may be payable relating to any transfer involved in the issuance
or delivery of the common stock in a name other than such
holder. If a holder converts any debentures within two years
after its original issuance, the common stock issuable upon
conversion will not be issued or delivered in a name other than
such holder's unless the applicable restrictions on
transfer have been satisfied. See "— Registration
Rights; Transfer Restrictions." Certificates representing
shares of common stock will be issued or delivered only after
all applicable transfer taxes and duties, if any, payable by
such holder have been paid.
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To convert interests in a global debentures, a
holder must deliver to DTC the appropriate instruction form for
conversion pursuant to DTC's conversion program. To convert
definitive debentures, a holder will be required to:
•
complete the conversion notice on the back of the
    debentures (or a facsimile of it);
•
deliver the completed conversion notice and the
    debentures to be converted to the specified office of the
    conversion agent;
•
pay all funds required, if any, relating to
    interest on the debentures to be converted to which such holder
    is not entitled, as described in the second preceding
    paragraph; and
•
pay all transfer taxes or duties, if any, as
    described in the preceding paragraph.
The conversion date will be the date on which all
of the foregoing requirements have been satisfied. The
debentures will be deemed to have been converted immediately
prior to the close of business on the conversion date. We will
deliver, or cause to be delivered, to a converting holder a
certificate for the number of shares of common stock into which
the debentures are converted (and cash in lieu of any fractional
shares) as soon as practicable on or after the conversion date.
The conversion agent, which initially will be the
indenture trustee, will, on our behalf, determine if the
debentures are convertible as a result of the market price of
our common stock on a daily basis, in the case of the right to
convert upon satisfaction of market price conditions, and at the
end of each quarter, in the case of the other bases upon which
holders may convert their debentures, in each case, notifying us
and the trustee.
Conversion Price Adjustments
We will adjust the initial conversion price for
certain events, including:
(1) issuances of our common stock as a
    dividend or distribution on our common stock;
(2) certain subdivisions, combinations or
    reclassifications of our common stock;
(3) issuances to all or substantially all
    holders of our common stock of certain rights or warrants to
    purchase our common stock (or securities convertible into our
    common stock) at less than (or having a conversion price per
    share less than) the then current market price of our common
    stock;
(4) distributions to all or substantially
    all holders of our common stock of shares of our capital stock
    (other than our common stock), evidences of our indebtedness or
    assets (including securities, but excluding:
(A) the rights and warrants to the extent
    included pursuant to paragraph (3) above;
(B) any dividends and distributions in
    connection with a reclassification, change, consolidation,
    merger, combination, sale or conveyance resulting in a change in
    the conversion consideration pursuant to the second succeeding
    paragraph;
(C) any dividends or distributions paid
    exclusively in cash; or
(D) common stock distributions to the extent
    included pursuant to paragraph (1) above);
(5) dividends or other distributions
    consisting exclusively of cash to all or substantially all
    holders of our common stock, other than dividends or
    distributions made in connection with our liquidation,
    dissolution or winding-up; and
(6) purchases of our common stock pursuant
    to a tender offer or exchange offer made by us or any of our
    subsidiaries to the extent that the cash and value of any other
    consideration included in the payment per share of common stock
    exceeds the closing sale price per share of our common stock on
    the trading day next succeeding the last date on which tenders
    or exchanges may be made pursuant to such tender or exchange
    offer.
We will not make an adjustment in the conversion
price unless such adjustment would require a change of at least
1% in the conversion price then in effect at such time. We will
carry forward and take into account in any subsequent adjustment
any adjustment that would otherwise be required to be made.
Except as stated above, we
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will not adjust the conversion price for the
issuance of our common stock or any securities convertible into
or exchangeable for our common stock or carrying the right to
purchase any of the foregoing.
If we distribute shares of capital stock of a
subsidiary of ours, the conversion rate will be adjusted, if at
all, based on the market value of the subsidiary stock so
distributed relative to the market value of our common stock, in
each case over a measurement period following the distribution.
If we elect to make a distribution described in
paragraph (3) or (4) above, which, in the case of
paragraph (4) above, has a per share value equal to
more than 5% of the market price of our shares of common stock
on the day preceding the declaration date for the distribution,
then, if the distribution would also trigger a conversion right
described above under "— Conversion
Rights — Conversion Upon Specified Corporate
Transactions," or if the debentures are otherwise
convertible, we will be required to give notice to the holders
of debentures at least 20 days prior to the ex-dividend
date for the distribution and, upon the giving of notice, the
debentures may be surrendered for conversion at any time until
the close of business on the business day prior to the
ex-dividend date or until we announce that the distribution will
not take place. No adjustment to the conversion price or the
ability of a holder of a debenture to convert will be made if
the holder will otherwise participate in the distribution
without conversion or in certain other cases.
If we:
(1) reclassify or change our common stock
    (other than changes resulting from a subdivision or
    combination); or
(2) consolidate or combine with or merge
    into any person or sell or convey to another person all or
    substantially all of our property and assets,
and the holders of our common stock receive
stock, other securities or other property or assets (including
cash or any combination thereof) with respect to or in exchange
for their common stock, the holders of the debentures may
convert the debentures into the consideration they would have
received if they had converted their debentures immediately
prior to such reclassification, change, consolidation,
combination, merger, sale or conveyance. We may not become a
party to any such transaction unless its terms are consistent
with the foregoing.
We may from time to time, to the extent permitted
by law, reduce the conversion price or increase the conversion
rate of the debentures by any amount for any period of at least
20 days. In that case, we will give at least
15 days' notice of such decrease. We may make such
reductions in the conversion price, in addition to those set
forth above, as our board of directors deems advisable to avoid
or diminish any income tax to holders of our common stock
resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income
tax purposes.
If we adjust the conversion price or conversion
ratio pursuant to the above provisions, we will issue a press
release through Dow Jones & Company, Inc. or Bloomberg
Business News containing the relevant information and make this
information available on our website or through another public
medium as we may use at that time.
Optional Redemption
The debentures will not be redeemable at our
option prior to August 1, 2008.
After August 1, 2008, we may redeem all or a
part of the debentures upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus
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accrued and unpaid interest, if any, on the
debentures redeemed, to the applicable redemption date, if
redeemed during the twelve-month period beginning on
August 1 of the years indicated below:
Year
Percentage
2008
103
%
2009
102
%
2010
101
%
2011 and thereafter
100
%
If less than all of the debentures are to be
redeemed at any time, the trustee will select debentures for
redemption as follows:
•
if the debentures are listed on any national
    securities exchange, in compliance with the requirements of the
    principal national securities exchange on which the debentures
    are listed; or
•
if the debentures are not listed on any national
    securities exchange, on a pro rata basis, by lot or by such
    method as the trustee deems fair and appropriate.
No debenture of $1,000 principal amount or less
can be redeemed in part. Notices of redemption will be mailed by
the trustee to each holder of debentures to be redeemed at such
holder's registered address. Notices of redemption may not
be conditional.
If any debentures are to be redeemed in part
only, the notice of redemption that relates to those debentures
in principal amount equal to the unredeemed portion of the
original debentures will be issued in the name of the holder of
debentures upon cancellation of the original debentures.
Debentures called for redemption become due on the day fixed for
redemption. On and after the redemption date, interest ceases to
accrue on debentures or portions of them called for redemption.
Any notice of redemption shall include a
(i) statement regarding the right of each holder to convert
its debentures and (ii) on what date the averaging period
shall commence.
Repurchase at Option of Holders
Optional Put
On August 1, 2008, 2013 and 2018, each
holder may require us to repurchase for cash all of such
holder's debentures not previously called for redemption,
or any portion of those debentures that is equal to $1,000 or a
whole multiple of $1,000, at a repurchase price equal to 100% of
the principal amount of those debentures plus any accrued and
unpaid interest, on those debentures to, but excluding, the
repurchase date. Holders may submit their debentures for
repurchase to the paying agent at any time from the opening of
business on the date that is 20 business days prior to the
applicable repurchase date until the close of business on the
repurchase date.
Change of Control Put
If a change of control occurs, each holder may
require us to repurchase for cash all of such holder's
debentures not previously called for redemption, or any portion
of those debentures that is equal to $1,000 or a whole multiple
of $1,000, at a repurchase price equal to 100% of the principal
amount of the debentures to be repurchased plus any accrued and
unpaid interest to, but excluding, the repurchase date.
A "change of control" will be deemed to
have occurred at such time after the original issuance of the
debentures when any of the following has occurred:
(1) the acquisition by any person, including
    any syndicate or group deemed to be a "person" under
    Section 13(d)(3) of the Exchange Act, of beneficial
    ownership, directly or indirectly, through a purchase, merger or
    other acquisition transaction or series of purchases, mergers or
    other acquisition transactions of shares of our capital stock
    entitling that person to exercise 50% or more of the total
    voting power of all shares of our capital stock entitled to vote
    generally in elections of directors, other than any acquisition
    by us, any of our subsidiaries or any of our employee benefit
    plans (except that such person shall be deemed to
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have beneficial ownership of all securities that
    such person has the right to acquire, whether such right is
    currently exercisable or is exercisable only upon the occurrence
    of a subsequent condition); or
(2) the first day on which a majority of the
    members of our board of directors are not continuing
    directors; or
(3) the consolidation or merger of us with
    or into any other person, any merger of another person into us,
    or any conveyance, transfer, sale, lease or other disposition of
    all or substantially all of our properties and assets to another
    person, other than:
(A) any transaction:
(i) that does not result in any
    reclassification, conversion, exchange or cancellation of
    outstanding shares of our capital stock; and
(ii) pursuant to which holders of our
    capital stock immediately prior to such transaction have the
    right to exercise, directly or indirectly, 50% or more of the
    total voting power of all shares of our capital stock entitled
    to vote generally in elections of directors of the continuing or
    surviving person immediately after giving effect to such
    issuance; or
(B) any merger solely for the purpose of
    changing our jurisdiction of incorporation and resulting in a
    reclassification, conversion or exchange of outstanding shares
    of common stock solely into shares of common stock of the
    surviving entity.
However, a change of control will be deemed not
to have occurred if:
(1) the market price per share of our common
    stock for any five trading days within:
(A) the period of 10 consecutive trading
    days ending immediately after the later of the change of control
    or the public announcement of the change of control, in the case
    of a change of control under
    paragraph (1) above; or
(B) the period of 10 consecutive trading
    days ending immediately before the change of control, in the
    case of a change of control under paragraph (2) or
    (3) above,
equals or exceeds 110% of the conversion price of
the debentures in effect on each such trading day; or
(2) at least 90% of the consideration in the
    transaction or transactions constituting a change of control
    consists of shares of common stock traded or to be traded
    immediately following such change of control on a national
    securities exchange or the Nasdaq National Market and, as a
    result of the transaction or transactions, the debentures become
    convertible solely into such common stock (and any rights
    attached thereto).
Beneficial ownership shall be determined in
accordance with Rules 13d-3 and 13d-5 under the Exchange
Act. The term "person" includes any syndicate or group
which would be deemed to be a "person" under
Section 13(d)(3) under the Exchange Act, while the term
"continuing director" means, as of any date of
determination, any member of the board of directors who:
•
was a member of the board of directors on
    July 23, 2003; or
•
was nominated for election or elected to the
    board of directors with the approval of a majority of the
    continuing directors who were members of the board at the time
    of new director's nomination or election.
The definition of "change of control"
includes a phrase relating to the conveyance, sale, transfer,
lease or disposition of "all or substantially all" of
our properties and assets. There is no precise, established
definition of the phrase "substantially all" under New
York law, which is the law governing the indenture and the
debentures. Accordingly, there may be uncertainty as to whether
or not a change of control may have occurred and, therefore, as
to whether or not the holders of debentures will have the right
to require us to repurchase their debentures.
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Repurchase Right Procedures
Within 20 business days after the occurrence of a
change of control, we will be required to give notice to all
holders of the occurrence of the change of control and of their
resulting repurchase right. The repurchase date will be 20
business days after the date we give that notice. With respect
to other repurchase rights, we will be required to give notice
20 business days prior to any repurchase date to all holders.
The notices will be delivered to the holders at their addresses
shown in the register of the registrar and to beneficial owners
as required by applicable law stating, among other things, the
procedures that holders must follow to require us to repurchase
their debentures as described below.
If holders have the right to cause us to
repurchase their debentures as described above, we will issue a
press release through Dow Jones & Company, Inc. or
Bloomberg Business News containing the relevant information and
make this information available on our website or through
another public medium as we may use at that time.
To elect to require us to repurchase debentures,
each holder must deliver the repurchase notice so that it is
received by the paying agent no later than the close of business
on the repurchase date and must state certain information,
including:
•
the certificate numbers of the holder's
    debentures to be delivered for repurchase;
•
the portion of the principal amount of debentures
    to be repurchased, which must be $1,000 or an integral multiple
    of $1,000; and
•
that the debentures are to be repurchased by us
    pursuant to the applicable provision of the indenture.
A holder may withdraw any repurchase notice by
delivering a written notice of withdrawal to the paying agent
prior to the close of business on the repurchase date. The
notice of withdrawal must state certain information, including:
(1) the principal amount of debentures being
    withdrawn;
(2) the certificate numbers of the
    debentures being withdrawn; and
(3) the principal amount, if any of the
    debentures that remain subject to the repurchase notice.
The Exchange Act requires the dissemination of
certain information to security holders and that an issuer
follow certain procedures if an issuer tender offer occurs,
which may apply if the repurchase rights summarized above become
available to holders of the debentures. In connection with any
offer to require us to repurchase debentures as summarized above
we will, to the extent applicable:
(1) comply with the provisions of
    Rule 13e-4, Rule 14e-1 and any other tender offer
    rules under the Exchange Act which may then be
    applicable; and
(2) file a Schedule TO or any other
    required schedule or form under the Exchange Act.
Our obligation to pay the repurchase price for
debentures for which a repurchase notice has been delivered and
not validly withdrawn is conditioned upon the holder delivering
the debentures, together with necessary endorsements, to the
paying agent at any time after delivery of the repurchase
notice. We will cause the repurchase price for the debentures to
be paid promptly following the later of the repurchase date or
the time of delivery of the debentures, together with such
endorsements.
If the paying agent holds money sufficient to pay
the repurchase price of the debentures for which a repurchase
notice has been given on the business day following the
repurchase date in accordance with the terms of the indenture,
then, immediately after the repurchase date, the debentures will
cease to be outstanding and interest on the debentures will
cease to accrue, whether or not the debentures are delivered to
the paying agent. Thereafter, all other rights of the holder
shall terminate, other than the right to receive the repurchase
price upon delivery of the debentures.
We may, to the extent permitted by applicable law
and agreements governing our other debt, if any, at any time
purchase the debentures in the open market or by tender at any
price or by private agreement. Any debentures so purchased by us
may, to the extent permitted by applicable law, be reissued or
resold or may be
74
surrendered to the trustee for cancellation. Any
debentures surrendered to the trustee may not be reissued or
resold and will be canceled promptly.
Limitations on Repurchase
    Rights
The repurchase rights described above may not
necessarily protect holders of the debentures if a highly
leveraged or another transaction involving us occurs that may
adversely affect holders.
Our ability to repurchase debentures upon the
occurrence of a change in control is subject to important
limitations. The occurrence of a change of control could cause
an event of default under, or be prohibited or limited by, the
terms of our then existing debt, if any. Further, we cannot give
any assurance that, in that event, we would have the financial
resources, or would be able to arrange financing, to pay the
repurchase price for all the debentures that might be delivered
by holders of debentures seeking to exercise the repurchase
right. Any failure by us to repurchase the debentures when
required following a change of control would result in an event
of default under the indenture. Any such default may, in turn,
cause a default under our other debt, if any. In addition, our
ability to repurchase debentures for cash may be limited by
restrictions on our ability to obtain funds for such repurchase
through dividends from our subsidiaries and other provisions in
the agreements governing our other debt, if any.
The change of control repurchase provision of the
debentures may, in certain circumstances, make more difficult or
discourage a takeover of our company. The change of control
repurchase feature, however, is not the result of our knowledge
of any specific effort to accumulate shares of our common stock,
to obtain control of us by means of a merger, tender offer
solicitation or otherwise or by management to adopt a series of
anti-takeover provisions. Instead, the change of control
purchase feature is a typical term contained in many convertible
securities similar to the debentures.
Consolidation, Merger and Assumption
The indenture provides that we may not
consolidate with or merge into any other person or convey,
transfer, sell, lease or otherwise dispose of all or
substantially all of our properties and assets to another person
unless, among other things:
•
the resulting, surviving or transferee person is
    organized and existing under the laws of the United States, any
    state thereof or the District of Columbia;
•
that person assumes all of our obligations under
    the indenture and the debentures; and
•
Alloy or such successor is not then or
    immediately thereafter in default under the indenture and no
    event which, after notice or lapse of time, would become an
    event of default under the indenture, shall have occurred and be
    continuing.
Events of Default
Each of the following constitutes an event of
default under the indenture:
(1) Our failure to pay when due the
    principal of or premium, if any, on any of the debentures at
    maturity, upon redemption or exercise of a repurchase right or
    otherwise;
(2) our failure to pay an installment of
    interest on any of the debentures for 30 days after the
    date when due;
(3) our failure to perform or observe any
    other term, covenant or agreement contained in the debentures or
    the indenture for a period of 60 days after written notice
    of such failure, requiring us to remedy the same, shall have
    been given to us by the trustee or to us and the trustee by the
    holders of at least 25% in aggregate principal amount of the
    debentures then outstanding;
(4) our default under any indebtedness for
    money borrowed by us or any of our subsidiaries that is a
    "significant subsidiary" or any group of two or more
    subsidiaries that, taken as a whole, would constitute a
    significant subsidiary, the aggregate outstanding principal
    amount of which is in an amount in excess of
75
$15 million, for a period of 30 days
    after written notice to us by the trustee or to us and the
    trustee by holders of at least 25% in aggregate principal amount
    of the debentures then outstanding, which default:
(A) is caused by our failure to pay when due
    principal or interest on such indebtedness by the end of the
    applicable grace period, if any, unless such indebtedness is
    discharged; or
(B) results in the acceleration of such
    indebtedness, unless such acceleration is waived, cured,
    rescinded or annulled; and
(5) certain events of bankruptcy, insolvency
    or reorganization with respect to us or any of our subsidiaries
    that is a significant subsidiary or any group of two or more
    subsidiaries that, taken as a whole, would constitute a
    significant subsidiary.
The indenture provides that the trustee will,
within 90 days of the occurrence of a default, give to the
registered holders of the debentures notice of all uncured
defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that
the withholding of such notice is in the best interest of such
registered holders, except in the case of a default in the
payment of the principal of, or premium, if any, or interest on,
any of the debentures when due or in the payment of any
repurchase obligation.
If an event of default specified in
clause (5) above occurs and is continuing with respect to
us, then automatically the principal of all the debentures and
the interest thereon shall become immediately due and payable.
If an event of default shall occur and be continuing, other than
with respect to clause (5) above with respect to us (the
default not having been cured or waived as provided under
"— Modifications and Amendments" below), the
trustee or the holders of at least 25% in aggregate principal
amount of the debentures then outstanding may declare the
debentures due and payable at their principal amount together
with accrued interest, and thereupon the trustee may, at its
discretion, proceed to protect and enforce the rights of the
holders of debentures by appropriate judicial proceedings. Such
declaration may be rescinded or annulled with the written
consent of the holders of a majority in aggregate principal
amount of the debentures then outstanding upon the conditions
provided in the indenture.
The indenture contains a provision entitling the
trustee, subject to the duty of the trustee during default to
act with the required standard of care, to be indemnified by the
holders of debentures before proceeding to exercise any right or
power under the indenture at the request of such holders. The
indenture provides that the holders of a majority in aggregate
principal amount of the debentures then outstanding through
their written consent may direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred upon the
trustee.
We are required to furnish annually to the
trustee a statement as to the fulfillment of our obligations
under the indenture.
Modifications and Amendments
Changes Requiring Approval of Each Affected
    Holder
The indenture, including the terms and conditions
of the debentures, is not able to be modified or amended without
the written consent or the affirmative vote of the holder of
each debentures affected by such change to:
(1) change the maturity of the principal of
or the date any installment of interest is due on any debentures;
(2) reduce the principal amount or
repurchase price of or redemption price of or interest on any
debentures;
(3) change the currency of payment of such
debentures or interest thereon;
(4) alter the manner of calculation or rate
of accrual of interest on any debentures or extend the payment
of any such amount;
(5) impair the right to institute suit for
the enforcement of any payment on or with respect to any
debentures;
(6) modify our obligations to maintain an
office or agency in New York, New York;
76
(7) except as otherwise permitted or
contemplated by provisions concerning corporate reorganizations,
adversely affect the repurchase rights or the conversion rights
of holders of the debentures;
(8) change redemption provisions to the
indenture in a manner adverse to the holders of
debentures; or
(9) reduce the percentage in aggregate
principal amount of debentures outstanding necessary to modify
or amend the indenture or to waive any past default.
Changes Requiring Majority
    Approval
Except as otherwise provided in respect of
changes requiring the approval of each affected holder and
changes requiring no approval, the indenture, including the
terms and conditions of the debentures, may be modified or
amended either:
(1) with the written consent of the holders
of at least a majority in aggregate principal amount of the
debentures at the time outstanding; or
(2) by the adoption of a resolution at a
meeting of holders by at least a majority in aggregate principal
amount of the debentures represented at such meeting.
Changes Requiring No Approval
The indenture, including the terms and conditions
of the debentures, may be modified or amended by us and the
trustee, without the consent of the holder of any debentures,
for the purposes of, among other things:
(1) adding to our covenants for the benefit
    of the holders of debentures;
(2) surrendering any right or power
    conferred upon us;
(3) providing for conversion rights of
    holders of debentures in the event of any reclassification or
    change of our common stock or any consolidation, merger or sale
    of all or substantially all of our assets occurs;
(4) providing for the assumption of our
    obligations to the holders of debentures in the case of a
    merger, consolidation or conveyance, sale, transfer or lease of
    all or substantially all of our assets;
(5) reducing the conversion price, provided
    that the reduction will not adversely affect the interests of
    the holders of debentures (after taking into account tax and
    other consequences of such reduction);
(6) complying with the requirements of the
    SEC in order to effect or maintain the qualification of the
    indenture under the Trust Indenture Act of 1939, as amended;
(7) making any changes or modifications
    necessary in connection with the registration of the debentures
    under the Securities Act as contemplated in the resale
    registration rights agreement, provided that such change or
    modification does not, in the good faith opinion of our board of
    directors and the trustee, adversely affect the interests of the
    holders of debentures in any material respect;
(8) curing any ambiguity or correcting or
    supplementing any defective provision contained in the indenture;
(9) adding guarantees with respect to the
    debentures; or
(10) adding or modifying any other
    provisions with respect to matters or questions arising under
    the indenture which we and the trustee may deem necessary or
    desirable and which will not adversely affect in any material
    respect the interests of the holders of debentures.
Governing Law
The indenture and the debentures are governed by,
and will be construed in accordance with, the law of the State
of New York.
77
Information Concerning the Trustee and the
Transfer Agent
Deutsche Bank Trust Company Americas, as trustee
under the indenture, initially has been appointed by us as
paying agent, conversion agent, registrar and custodian with
regard to the debentures. American Stock Transfer &
Trust Company is the transfer agent and registrar for our common
stock. The trustee or its affiliates may from time to time in
the future provide banking and other services to us in the
ordinary course of their business.
Registration Rights; Transfer
Restrictions
We have entered into a resale registration rights
agreement with the initial purchasers for the benefit of the
holders of the debentures under which we, at our expense, for
the benefit of the holders, filed with the SEC a shelf
registration statement, of which this prospectus is a part,
covering the resale of the debentures and the shares of stock
issuable upon conversion of the debentures. Pursuant to the
registration rights agreement, we have agreed to keep the shelf
registration statement effective until the earliest of:
•
August 20, 2005, which is two years after
    the last date of original issuance of any of the debentures;
•
the date when the holders of the debentures and
    the common stock issuable upon conversion of the debentures are
    able to sell all such securities immediately without restriction
    pursuant to the volume limitation provisions of Rule 144
    under the Securities Act; and
•
the date when all of the debentures and the
    common stock into which the debentures are convertible that are
    owned by the holders who complete and deliver the selling
    securityholder notice and questionnaire described below are
    registered under the shelf registration statement and disposed
    of in accordance with the shelf registration statement.
Each holder wishing to sell debentures or common
stock pursuant to the prospectus must notify us not later than
three business days prior to any proposed sale by that holder
pursuant to the shelf registration statement. This notice will
be effective for five business days. We may suspend the
holder's use of the prospectus for a reasonable period not
to exceed 45 days in any 90-day period, and not to exceed
an aggregate of 90 days in any 360-day period, if:
(1) the prospectus would, in our judgment,
contain a material misstatement or omission as a result of an
event that has occurred and is continuing; and
(2) we reasonably determine that the
disclosure of this material non-public information would have a
material adverse effect on us and our subsidiaries taken as a
whole.
However, if the disclosure relates to a
previously undisclosed proposed or pending material business
transaction, the disclosure of which would impede our ability to
consummate such transaction, we may extend the suspension period
from 45 days to 60 days. Each holder, by its
acceptance of a debenture, agrees to hold any communication by
us in response to a notice of a proposed sale in confidence.
If:
(1) we have not filed the shelf registration
statement with the SEC prior to or on the 90th day following the
earliest date of original issuance of any of the debentures;
(2) the shelf registration statement has not
been declared effective prior to or on the 180th day following
the earliest date of original issuance of any of the
debentures; or
(3) any registration statement ceases to be
effective or fails to be usable and (a) we do not cure the
registration statement within five business days by a
post-effective amendment or a report filed pursuant to the
Exchange Act or (b) if applicable, we do not terminate the
suspension period, described in the preceding paragraph, by the
45th or 60th day, as the case may be (each, a "registration
default"),
then additional amounts will accrue as liquidated
damages on the debentures, from and including the day following
the registration default to but excluding the day on which the
registration default has been cured. Additional amounts will be
paid semiannually in arrears, with the first semiannual payment
due on the first
78
interest payment date, as applicable, following
the date on which such liquidated damages begin to accrue, and
will accrue at a rate per year equal to:
(1) an additional 0.25% of the principal
amount to and including the 90th day following such registration
default; and
(2) an additional 0.50% of the principal
amount from and after the 91st day following such
registration default.
In no event will additional amounts accrue at a
rate per year exceeding 0.75%. If a holder has converted some or
all of its debentures into common stock, the holder will be
entitled to receive equivalent amounts based on the principal
amount of the debentures converted.
For holders of securities who or which are not
named as a selling securityholder in this prospectus at the time
of effectiveness of the shelf registration statement, we will
prepare and file, if required, as promptly as practicable after
the receipt of the holders' selling securityholder
questionnaires, amendments to the shelf registration statement
containing this prospectus and/or supplements to this prospectus
as necessary to permit such holders to deliver this prospectus,
including any supplements, to purchasers of the offered
securities, subject to our right to suspend the use of this
prospectus as described above.
The above summary of some of the provisions of
the registration rights agreement is subject to, and is
qualified in its entirety by reference to, all the provisions of
the registration rights agreement, a copy of which has been
filed as an exhibit to the registration statement of which this
prospectus forms a part.
Form, Denomination and Registration
Denomination and Registration
The debentures will be issued in fully registered
form, without coupons, in denominations of $1,000 principal
amount and whole multiples of $1,000.
Global Securities; Book-Entry
    Form
Except as provided below, the debentures are and
will be evidenced by one or more global securities deposited
with the trustee as custodian for DTC, and registered in the
name of Cede & Co. as DTC's nominee.
Record ownership of the global securities may be
transferred, in whole or in part, only to another nominee of DTC
or to a successor of DTC or its nominee, except as set forth
below. A holder may hold its interests in a global security
directly through DTC if such holder is a participant in DTC, or
indirectly through organizations which are direct DTC
participants if such holder is not a participant in DTC.
Transfers between direct DTC participants will be effected in
the ordinary way in accordance with DTC's procedures and
will be settled in same-day funds. Holders may also beneficially
own interests in the global securities held by DTC through
certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship
with a direct DTC participant, either directly or indirectly.
So long as Cede & Co., as nominee of
DTC, is the registered owner of the global securities,
Cede & Co. for all purposes will be considered the sole
holder of the global securities. Except as provided below,
owners of beneficial interests in the global securities:
•
will not be entitled to have certificates
    registered in their names;
•
will not receive or be entitled to receive
    physical delivery of certificates in definitive form; and
•
will not be considered holders of the global
    securities.
The laws of some states require that certain
persons take physical delivery of securities in definitive form.
Consequently, the ability of an owner of a beneficial interest
in a global security to transfer the beneficial interest in the
global security to such persons may be limited.
79
We will wire, through the facilities of the
trustee, payments of principal and interest payments on the
global securities to Cede & Co., the nominee of DTC, as
the registered owner of the global securities. Neither we, the
trustee nor any paying agent will have any responsibility or be
liable for paying amounts due on the global securities to owners
of beneficial interests in the global securities.
We have been informed that it is DTC's
current practice, upon receipt of any payment of principal of
and interest on the global securities, to credit
participants' accounts on the payment date in amounts
proportionate to their respective beneficial interests in the
debentures represented by the global securities, as shown on the
records of DTC, unless DTC believes that it will not receive
payment on the payment date. Payments by DTC participants to
owners of beneficial interests in debentures represented by the
global securities held through DTC participants will be the
responsibility of DTC participants, as is now the case with
securities held for the accounts of customers registered in
"street name."
If a holder would like to convert such
holder's debentures into common stock pursuant to the terms
of the debentures, such holder should contact its broker or
other direct or indirect DTC participant to obtain information
on procedures, including proper forms and cut-off times, for
submitting those requests.
Because DTC can only act on behalf of DTC
participants, who in turn act on behalf of indirect DTC
participants and other banks, a holder's ability to pledge
its interest in the debentures represented by global securities
to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest,
may be affected by the lack of a physical certificate.
Neither we nor the trustee (nor any registrar,
paying agent or conversion agent under the indenture) will have
any responsibility for the performance by DTC or direct or
indirect DTC participants of their obligations under the rules
and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder
of debentures, including, without limitation, the presentation
of debentures for conversion as described below, only at the
direction of one or more direct DTC participants to whose
account with DTC interests in the global securities are credited
and only for the principal amount of the debentures for which
directions have been given.
DTC has further advised us as follows: DTC is a
limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for DTC
participants and to facilitate the clearance and settlement of
securities transactions between DTC participants through
electronic book-entry changes to the accounts of its
participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and
may include certain other organizations, such as the initial
purchaser of the debentures. Certain DTC participants or their
representatives, together with other entities, own DTC. Indirect
access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or
maintain a custodial relationship with, a participant, either
directly or indirectly.
Although DTC has agreed to the foregoing
procedures in order to facilitate transfers of interests in the
global securities among DTC participants, it is under no
obligation to perform or continue to perform such procedures,
and such procedures may be discontinued or modified at any time.
If DTC is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by us
within 90 days, we will cause debentures to be issued in
definitive form in exchange for the global securities. None of
us, the trustee or any of our or its agents will have any
responsibility for the performance by DTC, direct or indirect
DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments
made on account of, beneficial ownership interests in global
securities.
According to DTC, the foregoing information with
respect to DTC has been provided to its participants and other
members of the financial community for informational purposes
only and is not intended to serve as a representation, warranty
or contract modification of any kind.
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CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS
The following is a summary of the material US
federal income tax consequences relating to the purchase,
ownership, and disposition of the debentures and of common stock
into which debentures may be converted, but does not purport to
be a complete analysis of all the potential tax consequences
that may be material to an investor based on such
investor's particular tax situation (such as the
alternative minimum tax provisions of the Code). This summary is
based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the applicable Treasury
Regulations, promulgated or proposed thereunder ("Treasury
Regulations"), judicial authority and current
administrative rulings and practice as of the date of this
offering memorandum. All of those authorities are subject to
change, possibly on a retroactive basis, or differing
interpretation, so as to result in US federal income tax
consequences different from those discussed below. This summary
deals only with initial beneficial owners of debentures that
will hold such debentures and common stock into which debentures
may be converted as "capital assets," within the
meaning of Section 1221 of the Code, and does not address
tax consequences applicable to holders that may be subject to
special tax rules, such as financial institutions, tax-exempt
organizations, expatriates, pension funds, insurance companies,
dealers in securities or foreign currencies, persons that will
hold debentures as a position in a hedging transaction,
"straddle," "conversion transaction" or
other risk reduction transaction for tax purposes, persons who
hold debentures through a partnership or other pass through
entity, or persons that have a "functional currency"
other than the US dollar (except as disclosed below under
"Non-US Holders"). This summary discusses the tax
consequences applicable to the holders who purchase the
debentures at their "issue price" as defined in
Section 1273 of the Code (i.e., the first price at which a
substantial portion of the debentures is sold to the public). We
have not sought any ruling from the Internal Revenue Service
(the "IRS") with respect to the statements made and
the conclusions reached in the following summary, and there can
be no assurance that the IRS will agree with such statements and
conclusions. Moreover, this discussion does not address the
effect of any applicable state, local or foreign tax laws, and
except where noted, the U.S. federal estate, gift or
alternative minimum tax consequences, if any, to the holder of
the debentures and common stock into which debentures may be
converted.
INVESTORS CONSIDERING THE PURCHASE OF
DEBENTURES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE APPLICATION OF THE US FEDERAL INCOME AND ESTATE TAX LAWS TO
THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
As used herein, the term "US Holder"
means a beneficial owner of a debenture or common stock that is
for U.S. federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a corporation, limited
liability company or partnership created or organized in or
under the laws of the United States or any political subdivision
thereof, (iii) an estate, the income of which is subject to
US federal income taxation regardless of its source, or (iv)
(a) a trust, the administration of which is subject to the
primary supervision of a court within the United States and
which has one or more US persons, as defined in
Section 7701(a)(3) of the Code, with authority to control
all substantial decisions, or (b) a trust that was in
existence on August 20, 1996 and was treated as a domestic
trust on August 19, 1996, that has elected to continue to
be treated as a U.S. trust. As used herein, the term
"Non-US Holder" means a beneficial owner of a
debenture or common stock that is not a US Holder. It should be
noted that certain "single member entities" are
disregarded for US federal income tax purposes. Thus, for US
federal income tax purposes, the income, gain, loss and
deductions of such an entity are attributed to the owner of such
single member entity. The discussion below for US Holders may
not apply to certain single member non-corporate entities that
are treated as owned by a Non-US Holder. Investors which are
single member noncorporate entities should consult with their
own tax advisors to determine the US federal, state, local and
other tax consequences that may be relevant to them.
Treatment of Convertible Debentures as Debt or
Equity
We intend to treat the debentures as debt for
federal income tax purposes. This characterization is binding on
the holders of the debentures unless the holder discloses on
his, her or its federal income tax return that he, she or it is
taking a contrary position. The following assumes that the
debentures will be treated as debt for federal income tax
purposes.
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US Holders
The following is a summary of the principal US
federal income tax consequences resulting from the ownership and
disposition of the debentures and common stock by US Holders.
Payment of Interest
Stated interest on a debenture generally will be
includable in the income of a US Holder as ordinary income at
the time such interest is received or accrued, in accordance
with such US Holder's method of accounting for
U.S. federal income tax purposes.
Sale, Exchange or Redemption of the
    Debentures
Upon the sale, exchange or redemption of a
debenture, a US Holder generally will realize and recognize
capital gain or loss equal to the difference, if any, between
the amount realized on the sale, exchange or redemption and the
US Holder's adjusted tax basis in such debenture. For these
purposes, the amount realized on the sale, exchange or
redemption of the debentures is equal to the amount of cash plus
the fair market value of any other property received, but does
not include any amount attributable to accrued but unpaid
interest, which will be taxable as such unless previously taken
into account. A US Holder's adjusted tax basis in a
debenture generally will be the US dollar value of the purchase
price of such debenture on the date of purchase. Gain or loss so
recognized will generally be capital gain or loss and will be
long-term capital gain or loss if, at the time of the sale,
exchange or redemption, the debenture was held for more than one
year. The deductibility of net capital losses is subject to
limitations.
Constructive Dividends on
    Debentures
The conversion price of the debentures is subject
to adjustment under certain circumstances. Under
Section 305 of the Code, adjustments to the conversion
ratio that increase a holder's proportionate share of our
assets or our earnings may in certain circumstances result in a
constructive dividend to such holder, resulting in ordinary
income to the holder to the extent of our current and
accumulated earnings and profits, as determined under
U.S. federal income tax principles. Similarly, a failure to
adjust the conversion price of the debentures to reflect a stock
dividend or similar event could in some circumstances give rise
to constructive dividend income to US Holders of common stock.
Conversion of the Debentures
A US Holder generally will not recognize any
income, gain or loss upon conversion of a debenture into common
stock, except with respect to cash received in lieu of a
fractional share of common stock. A US Holder's tax basis
in the common stock received on conversion of a debenture will
be the same as such US Holder's adjusted tax basis in the
debenture at the time of conversion reduced by any basis
allocable to a fractional share. The holding period for the
common stock received on conversion will generally include the
holding period of the debenture converted.
Cash received in lieu of a fractional share of
common stock upon conversion will be treated as a payment in
exchange for the fractional share of common stock. Accordingly,
the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss (measured by
the difference between the cash received for the fractional
share and the US Holder's adjusted tax basis in the
fractional share). The fair market value of the shares of common
stock received which is attributable to accrued interest will be
taxable as ordinary interest income.
Dividends on Common Stock
Generally, a distribution by us with respect to
our common stock will be treated as a dividend, subject to tax
as ordinary income, to the extent of our current or accumulated
earnings and profits as of the year of such distribution, then
as a tax-free return of capital to the extent of a US
Holder's tax basis in the common stock that such US Holder
holds and thereafter as gain from the sale or exchange of such
stock.
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In general, a dividend distribution to a
corporate US Holder may qualify for the 70% dividends received
deduction if the US Holder owns less than 20% of the voting
power and value of our stock (other than any non-voting,
non-convertible, non-participating preferred stock). A corporate
US Holder that owns 20% or more of the voting power and value of
our stock (other than any non-voting, non-convertible,
non-participating preferred stock) may qualify for an 80%
dividends received deduction subject to important exceptions.
Recently enacted tax legislation lowers the
maximum U.S. individual tax rate on capital gains and
"qualified dividend income" to 15% so long as certain
specified holding periods are satisfied. Capital gains on sales
of our common stock by U.S. individuals and "capital
gain" dividends received by U.S. individuals generally
will be eligible for the reduced 15% rate.
Sale of Common Stock
Upon the sale or exchange of common stock, a US
Holder generally will recognize capital gain or loss equal to
the difference between (i) the amount of cash and the fair
market value of any property received upon the sale or exchange
and (ii) such US Holder's adjusted tax basis in the
common stock. Such capital gain or loss will be long-term if the
US Holder's holding period is more than one year and will
be short-term if the holding period is equal to or less than one
year.
Non-US Holders
The following discussion is a summary of the
principal US federal income and estate tax consequences
resulting from the ownership of the debentures or common stock
by Non-US Holders.
Special rules may apply to certain Non-US Holders
such as "controlled foreign corporations,"
"passive foreign investment companies," "foreign
personal holding companies," corporations that accumulate
earnings to avoid federal income tax, or in certain
circumstances, United States expatriates. Such Non-US Holders
should consult their own tax advisors to determine the US
federal, state, local and other tax consequences that may be
relevant to them.
Payment of Interest
Subject to the discussion below of backup
withholding, interest paid on the debentures to a Non-US Holder
generally will not be subject to U.S. federal income tax if:
(1) such interest is not effectively
connected with the conduct of a trade or business within the
United States by such Non-US Holder and applicable certification
requirements are met;
(2) the Non-US Holder does not actually or
constructively own 10% or more of the total voting power of all
classes of our stock entitled to vote within the meaning of
Section 871(h)(3) of the Code;
(3) the Non-US Holder is not a controlled
foreign corporation that is related to us through stock
ownership (for this purpose, the holder of debentures would be
deemed to own constructively the common stock into which it
could be converted);
(4) the Non-US Holder, under penalty of
perjury, certifies that he, she or it is not a US person (as
defined in Section 7701(a)(3) of the Code) and provides
his, her or its name and address; and
(5) the Non-US Holder is not a bank
receiving interest on the debentures pursuant to a loan
agreement entered into in the ordinary course of its trade or
business.
If certain requirements are satisfied, the
certification described in clause 4 above may be provided by a
securities clearing organization, a bank, or other financial
institution that holds customers' securities in the
ordinary course of its trade or business. In addition, the
certification described in clause 4 above may also be provided
by a qualified intermediary on behalf of one or more beneficial
owners (or other intermediaries), provided that such
intermediary has entered into a withholding agreement with the
IRS and certain other conditions are met.
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With respect to foreign partnership and certain
foreign trusts, Treasury Regulations require such entities to
provide additional documentation which (i) certifies that
the individual partners, beneficiaries, or owners of the
partnership or trust are not US Holders, and (ii) provides
the names and addresses of the individual partners,
beneficiaries or owners.
A holder that is not exempt from tax under these
rules will be subject to U.S. federal income tax
withholding at a rate of 30% on payments of interest, unless the
interest is effectively connected with the conduct of a
U.S. trade or business of the holder or a lower treaty rate
applies and, in either case, the Non-US Holder provides us with
proper certification as to the holder's exemption from
withholding. If the interest is effectively connected to the
conduct of a U.S. trade or business of the Non-US Holder,
it will be subject to the US federal income tax on net income
that applies to U.S. persons generally. In addition, with
respect to corporate holders and under certain circumstances, a
Non-US Holder may be subject to a branch profits tax equal to
30% (or lower applicable treaty rate) of earnings and profits
for the taxable year, subject to adjustments, that are
effectively connected with the US trade or business. For this
purpose, interest will be included in the earnings and profits
of such foreign corporation. Non-US Holders should consult
applicable income tax treaties, which may provide different
rules.
Sale or Exchange
Subject to the discussion below on backup
withholding, a Non-US Holder generally will not be subject to
U.S. federal income tax or withholding on the gain realized
on the sale or exchange of a debenture, or the sale or exchange
of common stock, unless:
(1) the gain is effectively connected with
the conduct of a trade or business within the United States by
such Non-US Holder;
(2) in the case of an individual Non-US
Holder, such holder is present in the United States for
183 days or more in the year of such sale or exchange and
certain other requirements are met; or
(3) the Non-US Holder is subject to tax
pursuant to the provisions of US tax law applicable to certain
US expatriates.
Conversion of the Debentures
A Non-US Holder generally will not be subject to
U.S. federal income tax on the conversion of a debenture
into shares of common stock. The fair market value of shares of
common stock received, which is attributable to accrued
interest, will be subject to the rules applicable to the payment
of interest described above. To the extent a Non-US Holder
receives cash in lieu of a fractional share on conversion, such
cash may give rise to gain that would be subject to the rules
described above with respect to the sale or exchange of a
debenture or common stock.
Dividends
Subject to the discussion below on backup
withholding, dividends, if any, paid on the common stock to a
Non-US Holder that are not treated as effectively connected to a
trade or business carried on by the Non-US Holder in the United
States generally will be subject to a 30% US federal withholding
tax, subject to reduction for Non-US Holders eligible for the
benefits of certain income tax treaties. Dividends for this
purpose may include stock distributions treated as deemed
dividends as discussed in "US Holders —
Constructive Dividends on Debentures" above. A Non-US
Holder who wishes to claim the benefits of an applicable tax
treaty will be required to satisfy certain certification and
other requirements.
Except to the extent otherwise provided under an
applicable tax treaty, a Non-US Holder generally will be taxed
in the same manner as a US Holder on dividends paid (or deemed
paid) that are effectively connected with the conduct of a trade
or business in the United States by the Non-US Holder (and if
required by an applicable tax treaty, is attributable to a
permanent establishment maintained in the United States).
Certain certification and disclosure requirements must be
complied with in order for effectively connected income to be
exempt from withholding. In addition, if such Non-US Holder is a
foreign corporation, it may also be subject to a US branch
84
profits tax on such effectively connected income
at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
U.S. Federal Estate Tax
A debenture held by an individual who at the time
of death is not a citizen or resident of the United States (as
specially defined for US federal estate tax purposes) will not
be subject to U.S. federal estate tax if the individual did
not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock and, at the
time of the individual's death, payments with respect to
such debenture would not have been effectively connected with
the conduct by such individual of a trade or business in the
United States. However, common stock held by an individual who
at the time of death is not a citizen or resident of the United
States (as specially defined for U.S. federal estate tax
purposes) will be included in such individual's estate for
U.S. federal estate tax purposes, and the rate of tax that
applies thereto may be reduced or eliminated if an applicable
estate tax treaty otherwise applies.
Backup Withholding and Information
Reporting
US Holders
A US Holder of debentures or common stock may be
subject to "backup withholding" with respect to
certain "reportable payments," including interest
payments, dividend payments and, under certain circumstances,
principal payments on the debentures and certain other
consideration received upon the call, exchange, redemption or
conversion of a debenture. These backup withholding rules apply
if the US Holder, among other things, (i) fails to furnish
a social security number or other taxpayer identification number
("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes
an incorrect TIN, (iii) fails to report properly interest
or dividends or (iv) under certain circumstances, fails to
provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that
such US Holder is not subject to backup withholding. A US Holder
who does not provide us with its correct TIN may also be subject
to penalties imposed by the IRS. Any amount withheld from a
payment to a holder under the backup withholding rules is
creditable against the holder's federal income tax
liability. Backup withholding will not apply, however, with
respect to payments made to certain US Holders, including
corporations and tax-exempt organizations, provided their
exemption from backup withholding is properly established. We
will report to US Holders of debentures and common stock and to
the IRS the amount of any "reportable payments" for
each calendar year and the amount of tax withheld, if any, with
respect to such payments.
Non-US Holders
We must report annually to the IRS and to each
Non-US Holder the amount of any dividends paid to, and tax
withheld with respect to, such holder, regardless of whether any
tax was actually withheld on such payments. Copies of these
information returns may also be made available under the
provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-US Holder resides or
is incorporated.
Under current Treasury Regulations, backup
withholding and information reporting will not apply to payments
of interest or principal of the debentures by us or our agent to
a Non-US Holder if the Non-US Holder certifies as to its Non-US
Holder status under penalties of perjury or otherwise
establishes an exemption (provided that neither we nor our agent
has actual knowledge that the holder is a U.S. person or
that the conditions of any other exemptions are not in fact
satisfied). The payment of the proceeds on the disposition of
debentures or share of common stock to or through the
U.S. office of a U.S. or foreign broker will be
subject to information reporting and backup withholding unless
the owner provides the certification described above or
otherwise establishes an exemption. The proceeds of the
disposition by a Non-US Holder of debentures or shares of common
stock effected outside the United States to or through a foreign
office of a broker generally will not be subject to backup
withholding or information reporting. However, if such broker
is, for U.S. federal income tax purposes, a
U.S. person, a controlled foreign corporation, a foreign
person that derives 50% or more of its gross income from all
sources for certain periods from activities that are effectively
connected with a US trade or business, a foreign partnership in
which one or more U.S. persons, in the aggregate, own more
than 50% of the
85
income or capital interests in the partnership or
a foreign partnership that is engaged in a trade or business in
the United States, information reporting requirements, but not
backup withholding, will apply unless such broker has
documentary evidence in its files of the holder's Non-US
status and has no actual knowledge (or reason to know) to the
contrary or unless the holder otherwise establishes an exemption.
PLAN OF DISTRIBUTION
The selling securityholders and their successors,
which term includes their transferees, pledgees or donees or
their successors may sell common stock, the debentures and the
underlying common stock (collectively, the
"securities") directly to purchasers or through
underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or
commissions from the selling securityholders or the purchasers.
These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those
customary in the types of transactions involved.
Sales of the securities may be effected by the
selling securityholder from time to time in one or more types of
transactions, which may include block transactions, on the
Nasdaq National Market, in the over-the-counter market, in
negotiated transactions otherwise than on the Nasdaq National
Market or in the over-the-counter market, through put or call
options transactions relating to the securities whether such
options are listed on an options exchange or otherwise, through
short sales of securities, or a combination of such methods of
sale, at market prices prevailing at the time of sale, at
varying prices determined at the time of sale, at fixed prices
or at negotiated prices. Such transactions may or may not
involve brokers or dealers.
The securities may be sold by one or more, or a
combination, of the following, in addition to any other method
permitted under this prospectus:
•
a block trade in which the broker-dealer so
    engaged will attempt to sell the securities as agent but may
    position and resell a portion of the block as principal to
    facilitate the transaction;
•
purchases by a broker-dealer as principal and
    resale by this broker-dealer for its account through this
    prospectus;
•
an exchange distribution;
•
ordinary brokerage transactions and transactions
    in which the broker solicits purchasers;
•
privately negotiated transactions;
•
an underwritten offering;
•
by pledge to secure debts and other
    obligations; or
•
to cover hedging transactions made pursuant to
    this prospectus.
If required, this prospectus may be amended or
supplemented on a continual basis to describe a specific plan of
distribution. In making sales, broker-dealers engaged by the
selling securityholders may arrange for other broker-dealers to
participate in the resales.
The aggregate proceeds to the selling
securityholders from the sale of the common stock, the
debentures or the underlying common stock offered by them hereby
will be the purchase price of the debentures or common stock
less discounts and commissions, if any. Each of the selling
securityholders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part,
any proposed purchase of securities to be made directly or
through agents. We will not receive any of the proceeds from
this offering.
In connection with the sale of securities, the
selling securityholders may enter into hedging transactions with
brokers, dealers or others, who in turn may engage in short
sales of the securities in the course of hedging the positions
they assume; sell short or deliver securities to close out
positions; or loan securities to brokers, dealers or others that
may in turn sell such securities. The selling securityholders
may enter into option or other transactions with broker-dealers
that require the delivery to the broker-dealer of the
securities. The broker-dealer may then resell or transfer these
securities through this prospectus. The selling securityholders
may also loan or
86
pledge the securities to a broker-dealer. The
broker-dealer may sell the securities which are loaned, or upon
a default the broker-dealer may sell the pledged securities by
use of this prospectus. Some or all of the securities offered in
this prospectus may also be sold to or through an underwriter or
underwriters. Any securities sold in that manner will be
acquired by the underwriters for their own accounts and may be
resold at different times in one or more transactions, including
negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. These securities
may be offered to the public through underwriting syndicates
represented by one or more managing underwriters or may be
offered to the public directly by one or more underwriters. Any
public offering price and any discounts or concessions allowed
or disallowed to be paid to dealers may be changed at different
times.
Underwriters, broker-dealers or agents may
receive compensation in the form of discounts, concessions, or
commissions from the selling securityholders and/or the
purchasers of securities for whom such underwriters,
broker-dealers or agents may act as agents or to whom they sell
as principal, or both (that compensation as to a particular
underwriter or broker-dealer might be in excess of customary
commissions and will be in amounts to be negotiated at the time
of sale).
The selling securityholders and any underwriters,
broker-dealers or agents that act in connection with the sale of
securities may be deemed to be an "underwriter" within
the meaning of Section 2(11) of the Act, and any
commissions received by them and any profit on the resale of the
securities sold by them while acting as principals might be
deemed to be underwriting discounts or commissions under the Act.
Because each of the selling securityholders may
be deemed to be an "underwriter" within the meaning of
Section 2(11) of the Securities Act, the selling
securityholders will be subject to the prospectus delivery
requirements of the Securities Act. Neither the delivery of any
prospectus, or any prospectus supplement, nor any other action
taken by the selling securityholders or any purchaser relating
to the purchase or sale of securities under this prospectus
shall be treated as an admission that any of them is an
underwriter within the meaning of the Act relating to the sale
of any securities. We have informed the selling stockholders
that the anti-manipulative provisions of Regulation M
promulgated under the Exchange Act may apply to their sales in
the market.
The selling securityholders also may resell all
or a portion of the securities in open market transactions in
reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of
Rule 144.
The securities may be sold through registered or
licensed brokers or dealers if required under applicable state
securities laws. Additionally, in some states the securities may
not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the
registration or qualification requirement is available and is
complied with.
Upon notification to us by the selling
securityholders that any material arrangement has been entered
into with a broker-dealer for the sale of securities through a
block trade, special offering, exchange distribution or
secondary offering or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act. That
supplement will disclose:
•
the name of the selling stockholder(s) and of the
    participating broker-dealer(s),
•
the securities involved,
•
the price(s) at which such securities were sold,
•
the commissions paid or discounts or concessions
    allowed to such broker-dealer(s), where applicable,
•
that such broker-dealer(s) did not conduct any
    investigation to verify the information set out or incorporated
    by reference in this prospectus, and
•
other facts material to the transaction.
We have agreed to indemnify the selling
securityholders, and the selling securityholders may agree to
indemnify any underwriter, broker-dealer or agent that
participates in transactions involving sales of the securities,
against certain liabilities, including liabilities arising under
the Act.
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We estimate that the total expenses of the
offering payable by us, excluding underwriting discounts and
commissions, will be approximately $160,606.
LEGAL MATTERS
The validity of the issuance of the securities
registered under this Registration Statement has been passed
upon for the Company by Katten Muchin Zavis Rosenman of
Washington, DC. The fair market value of all securities of the
Registrant owned, received or to be received, or subject to
options, warrants or rights received or to be received by
members of Katten Muchin Zavis Rosenman, including certain
members of their families and trusts for their benefit, does not
exceed $50,000.
EXPERTS
The consolidated financial statements and
schedules of Alloy, Inc. and its subsidiaries as of
January 31, 2004 and 2003 and for the years then ended, are
included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent registered public
accounting firm, and upon the authority of said firm as experts
in accounting and auditing. The audit report covering the
January 31, 2003, financial statements refers to the change
in the method of accounting for goodwill and other intangible
assets.
The consolidated financial statements for the
year ended January 31, 2002 are included herein and in the
registration statement, and were audited by Arthur Andersen LLP,
independent public accountants, as indicated in its report with
respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in
giving said reports.
On May 31, 2002, we filed a current report
on Form 8-K indicating that we engaged KPMG LLP to replace
Arthur Andersen as our independent auditors. During the fiscal
year ended January 31, 2002 and the subsequent interim
period preceding the change of auditors, we had no disagreements
with Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosures or auditing scope or
procedures which, if not resolved to Arthur Andersen's
satisfaction, would have caused it to make reference to the
disagreement in connection with its report.
We have not been able to obtain, after reasonable
efforts, the written consent of Arthur Andersen to our naming it
in this prospectus as having certified our consolidated
financial statements for the year ended January 31, 2002,
as required by Section 7 of the Securities Act.
Accordingly, we have dispensed with the requirement to file its
consent in reliance upon Rule 437a of the Securities Act.
Because Arthur Andersen has not consented to the inclusion of
its report in this prospectus, you may have no effective remedy
against Arthur Andersen under Section 11 of the Securities
Act for any untrue statements of a material fact contained in
the financial statements audited by Arthur Andersen, or any
omissions to state a material fact required to be stated
therein. In addition, the ability of Arthur Andersen to satisfy
any claims (including claims arising from its provision of
auditing and other services to us) may be limited as a practical
matter due to events regarding Arthur Andersen.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports,
proxy statements and other information with the Commission. Our
Commission filings are available to the public over the Internet
at the Commission's Web site at http://www.sec.gov. You may
also read and copy any document we file at the Commission's
public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0330. Our common stock is listed and traded on the
Nasdaq National Market under the symbol "ALOY."
This prospectus, which constitutes a part of a
registration statement on Form S-1 filed by us with the
Commission under the Act, omits certain of the information set
forth in the registration statement. Accordingly, you should
refer to the registration statement and its exhibits for further
information with respect to us and our common stock and
debentures. Copies of the registration statement and its
exhibits are on file at the offices of the Commission.
Furthermore, statements contained in this prospectus concerning
any document filed as an exhibit are not necessarily complete
and, in each instance, we refer you to the copy of the document
filed as an exhibit to the registration statement.
88
ALLOY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
SCHEDULE
Page
Audited Financial Statements
Independent Registered Public Accounting
    Firm's Report of KPMG LLP (dated May 14, 2004)
F-2
Report of Independent Public Accountants (Arthur
    Andersen, dated March 13, 2002)
F-3
Consolidated Balance Sheets as of
    January 31, 2003 and 2004
F-4
Consolidated Statements of Operations and
    Comprehensive Income (Loss) for the Years Ended January 31,
    2002, 2003 and 2004
F-5
Consolidated Statements of Changes in
    Stockholders' Equity for the Years Ended January 31,
    2002, 2003 and 2004
F-6
Consolidated Statements of Cash Flows for the
    Years Ended January 31, 2002, 2003 and 2004
F-9
Notes to Consolidated Financial Statements
F-11
Financial Statement Schedule
The following financial statement schedule is
    included herein:
Schedule II — Valuation and
    Qualifying Accounts
F-52
Unaudited Financial Statements for the fiscal
    quarter ended April 30, 2004
F-53
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.
F-1
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and
Stockholders of Alloy, Inc.:
We have audited the accompanying consolidated
balance sheets of Alloy, Inc. and subsidiaries as of
January 31, 2004 and 2003, and the related consolidated
statements of operations and comprehensive (loss) income,
changes in stockholders' (deficit) equity and cash
flows for the years then ended. In connection with our audits of
the consolidated financial statements, we also have audited the
related January 31, 2004 and 2003 financial statement
schedules. These consolidated financial statements and financial
statement schedules are the responsibility of Alloy, Inc.'s
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits. The consolidated financial
statements and related financial statement schedule of Alloy,
Inc. and subsidiaries as of January 31, 2002 and for the
year then ended were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on
those financial statements and related financial statement
schedules, before the restatement described in Note 19 to
the financial statements, in their report dated March 13,
2002.
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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the 2003 and 2002 consolidated
financial statements referred to above present fairly, in all
material respects, the financial position of Alloy, Inc. and
subsidiaries as of January 31, 2004 and 2003 and the
results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion,
the related 2003 and 2002 financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Note 4 to the consolidated
financial statements, Alloy, Inc. changed its method of
accounting for goodwill and other intangible assets in 2002.
Our report also indicates that the Company
changed the composition of its reportable segments in 2002 and
the amounts in the 2001 financial statements related to
reportable segments have been restated to conform to the 2002
composition of reportable segments. As described in
Note 19, the Company changed the composition of its
reportable segments in 2002, and the amounts in the 2001
financial statements relating to reportable segments have been
restated to conform to the 2002 composition of reportable
segments. As discussed above, the 2001 financial statements of
Alloy, Inc. were audited by other auditors who have ceased
operations.
/s/KPMG LLP
New York, New York
May 14, 2004
F-2
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Board of Directors and
Shareholders of Alloy, Inc.:
We have audited the accompanying consolidated
balance sheets of Alloy, Inc. (a Delaware corporation) and
subsidiaries as of January 31, 2001 and 2002, and the
related consolidated statements of operations and comprehensive
loss, statements of changes in shareholders' equity and
accumulated other comprehensive (loss) income and cash flows for
each of the three years in the period ended January 31,
2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
did not audit the financial statements of 360 Youth, Inc. as of
January 31, 2002 and for the period from November 27,
2001 through January 31, 2002, which statements reflect
total assets and total revenues of 2 percent and
3 percent in the fiscal year ended January 31, 2002 of
the related consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for this
entity, is based solely on the report of the other auditors.
We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and
the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the
report of other auditors, the financial statements referred to
above present fairly, in all material respects, the financial
position of Alloy, Inc. and subsidiaries as of January 31,
2001 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended
January 31, 2002 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole.
The schedule of valuation and qualifying accounts is presented
for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 13, 2002
THIS IS A COPY OF A REPORT ISSUED BY ARTHUR
ANDERSEN LLP, OUR FORMER INDEPENDENT AUDITORS, AS OF THE DATES
INDICATED ABOVE, AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP SINCE THOSE DATES.
F-3
ALLOY, INC.
CONSOLIDATED BALANCE SHEETS
Audited Financial Statements.
January 31,
2003
2004
(Amounts in thousands,
except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
35,187
$
27,273
Restricted cash
—
3,270
Marketable securities available-for-sale
15,649
19,014
Accounts receivable, net of allowance for
    doubtful accounts of $3,410 and $3,336, respectively
30,022
31,492
Inventories
23,466
29,021
Prepaid catalog costs
2,100
2,028
Other current assets
10,130
3,813
Total current assets
116,554
115,911
Marketable securities available-for-sale
7,520
5,585
Property and equipment, net
10,081
27,234
Deferred tax assets
5,621
—
Goodwill, net
270,353
274,796
Intangible and other assets, net
24,471
25,865
Total assets
$
434,600
$
449,391
LIABILITIES AND STOCKHOLDERS'
    EQUITY
CURRENT LIABILITIES:
Accounts payable
$
28,032
$
28,740
Deferred revenues
15,106
15,124
Mortgage note payable
—
2,914
Accrued expenses and other current liabilities
27,679
36,841
Total current liabilities
70,817
83,619
Deferred tax liabilities
2,698
—
Long-term liabilities
93
743
Senior Convertible Debentures Due 2023
—
69,300
Series B Redeemable Convertible Preferred
    Stock, $10,000 per share liquidation preference;
    $.01 par value; 3,000 shares designated; mandatorily
    redeemable on June 19, 2005; 1,613 and 1,340 shares
    issued and outstanding, respectively
15,550
14,434
STOCKHOLDERS' EQUITY:
Preferred stock; $.01 par value;
    10,000,000 shares authorized of which 1,850,000 shares
    designated as Series A Redeemable Convertible Preferred
    Stock and 3,000 shares designated as Series B
    Redeemable Convertible Preferred Stock authorized, 1,613 and
    1,340 shares issued and outstanding as Series B
    Redeemable Convertible Preferred Stock (above), respectively
—
—
Common stock; $.01 par value;
    200,000,000 shares authorized; 40,082,024 and
    42,701,767 shares issued, respectively
401
427
Additional paid-in capital
396,963
412,594
Accumulated deficit
(51,955
)
(127,170
)
Deferred compensation
—
(1,411
)
Accumulated other comprehensive income (loss)
164
(30
)
Less common stock held in treasury, at cost;
    8,275 and 608,275 shares, respectively
(131
)
(3,115
)
Total stockholders' equity
345,442
281,295
Total liabilities and stockholders' equity
$
434,600
$
449,391
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
ALLOY, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
For the Years Ended January 31,
2002
2003
2004
(Amounts in thousands, except
share and per share data)
NET REVENUES:
Net direct marketing revenues
$
124,052
$
167,572
$
156,821
Retail stores revenues
—
—
30,103
Sponsorship and other revenues
41,570
131,758
185,024
Total net revenues
165,622
299,330
371,948
COST OF REVENUES:
Cost of goods sold
59,850
79,912
99,820
Cost of sponsorship and other revenues
9,008
65,236
89,559
Total cost of revenues
68,858
145,148
189,379
Gross profit
96,764
154,182
182,569
OPERATING EXPENSES:
Selling and marketing
81,829
108,791
145,715
General and administrative
13,516
17,240
33,970
Amortization of goodwill and other intangible
    assets
18,316
5,554
7,887
Impairment of goodwill and other indefinite-lived
    intangible assets
—
—
60,638
Impairment of long-lived assets
—
—
1,315
Restructuring charges
—
2,571
730
Total operating expenses
113,661
134,156
250,255
(Loss) income from operations
(16,897
)
20,026
(67,686
)
OTHER INCOME (EXPENSE):
Interest income
943
1,701
687
Interest expense
(8
)
(1
)
(2,690
)
Gain (loss) on sales of marketable securities and
    write-off of investments, net
658
97
(247
)
(Loss) income before income taxes
(15,304
)
21,823
(69,936
)
Provision (benefit) for income taxes
296
(1,472
)
5,279
Net (loss) income
(15,600
)
23,295
(75,215
)
Unrealized (loss) gain on available-for-sale
    marketable securities, net of realized gains and losses
(892
)
217
(194
)
Comprehensive (loss) income
$
(16,492
)
$
23,512
$
(75,409
)
Net (loss) income
$
(15,600
)
$
23,295
$
(75,215
)
Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued
6,745
—
—
Preferred stock dividends and accretion of
    discount
3,013
2,100
1,944
Net (loss) income attributable to common
    stockholders
$
(25,358
)
$
21,195
$
(77,159
)
Basic and diluted net (loss) earnings per share
    of common stock:
Basic net (loss) earnings attributable to common
    stockholders per share
$
(1.02
)
$
0.55
$
(1.87
)
Diluted net (loss) earnings attributable to
    common stockholders per share
$
(1.02
)
$
0.53
$
(1.87
)
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING:
24,967,678
38,436,256
41,175,046
WEIGHTED AVERAGE DILUTED COMMON SHARES
    OUTSTANDING:
24,967,678
40,071,412
41,175,046
The accompanying notes are an integral part of
these financial statements.
F-5
ALLOY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Year Ended January 31,
2002
(Amounts in thousands, except share
data)
Accumulated
Common Stock
Additional
Other
Paid-In
Deferred
Comprehensive
Shares
Amount
Capital
Deficit
Compensation
Income (Loss)
Total
Balance, January 31, 2001
21,245,958
$
212
$
140,864
$
(52,905
)
$
(728
)
$
839
$
88,282
Issuance of common stock and warrants for
    acquisitions of businesses
7,534,032
75
96,573
—
—
—
96,648
Cancellation of stock options issued to employees
    and consultants
—
—
(488
)
—
488
—
—
Amortization of deferred compensation
—
—
—
—
209
—
209
Issuance of common stock pursuant to the exercise
    of options and warrants and the employee stock purchase plan
1,273,296
13
11,454
—
—
—
11,467
Impact of beneficial conversion feature in
    issuance of Series A and Series B Convertible
    Preferred Stock
—
—
6,745
(6,745
)
—
—
—
Issuance of warrants to holders of Series A
    and B Convertible Preferred Stock
—
—
3,917
—
—
—
3,917
Issuance of common stock for conversion of
    Series A and Series B Convertible Preferred Stock
921,225
9
10,712
—
—
—
10,721
Issuance of common stock and warrants in
    connection with private placements
3,942,366
39
57,956
—
—
—
57,995
Accretion of discount and dividends on
    Series A and Series B Convertible Preferred Stock
—
—
(3,013
)
—
—
—
(3,013
)
Net loss
—
—
—
(15,600
)
—
—
(15,600
)
Unrealized loss on available-for-sale marketable
    securities, net of realized gains and losses
—
—
—
—
—
(892
)
(892
)
Balance, January 31, 2002
34,916,877
$
349
$
324,719
$
(75,250
)
$
(31
)
$
(53
)
$
249,734
The accompanying notes are an integral part of
these financial statements.
F-6
ALLOY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Year Ended January 31,
2003
(Amounts in thousands, except share
data)
Accumulated
Common Stock
Additional
Other
Treasury Shares
Paid-In
Accumulated
Deferred
Comprehensive
Shares
Amount
Capital
Deficit
Compensation
Income (Loss)
Shares
Amount
Total
Balance, January 31, 2002
34,916,877
$
349
$
324,719
$
(75,250
)
$
(31
)
$
(53
)
—
$
—
$
249,734
Issuance of common stock and warrants for
    acquisitions of businesses
803,628
8
11,421
—
—
—
—
—
11,429
Shares returned from escrow
—
—
—
—
—
—
(8,275
)
(131
)
(131
)
Amortization of deferred compensation
—
—
—
—
31
—
—
—
31
Issuance of common stock pursuant to the exercise
    of options and warrants and the employee stock purchase plan,
    net of tax benefit of $2,481
225,050
2
4,403
—
—
—
—
—
4,405
Issuance of common stock for conversion of
    Series B Convertible Preferred Stock
136,469
2
1,594
—
—
—
—
—
1,596
Issuance of common stock and warrants in
    connection with private placements and public offering, net of
    expenses
4,000,000
40
56,926
—
—
—
—
—
56,966
Accretion of discount and dividends on
    Series B Convertible Preferred Stock
—
—
(2,100
)
—
—
—
—
—
(2,100
)
Net income
—
—
—
23,295
—
—
—
—
23,295
Unrealized gain on available-for-sale marketable
    securities, net of realized gains and losses
—
—
—
—
—
217
—
—
217
Balance, January 31, 2003
40,082,024
$
401
$
396,963
$
(51,955
)
$
—
$
164
(8,275
)
$
(131
)
$
345,442
The accompanying notes are an integral part of
these financial statements.
F-7
ALLOY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Year Ended January 31,
2004
(Amounts in thousands, except share
data)
Accumulated
Other
Common Stock
Additional
Comprehensive
Treasury Shares
Paid-In
Accumulated
Deferred
Income
Shares
Amount
Capital
Deficit
Compensation
(Loss)
Shares
Amount
Total
Balance, January 31, 2003
40,082,024
$
401
$
396,963
$
(51,955
)
$
—
$
164
(8,275
)
$
(131
)
$
345,442
Issuance of common stock for acquisitions of
    businesses
2,165,048
21
11,150
—
—
—
—
—
11,171
Repurchase of common stock
—
—
—
—
—
—
(600,000
)
(2,984
)
(2,984
)
Revision of accrued issuance costs in connection
    with public and private stock offerings
—
—
102
—
—
—
—
—
102
Amortization of deferred compensation
—
—
—
—
12
—
—
—
12
Issuance of common stock pursuant to the exercise
    of options and common stock purchases under the employee stock
    purchase plan
193,190
2
854
—
—
—
—
—
856
Issuance of common stock for conversion of
    Series B Convertible Preferred Stock
261,505
3
3,057
—
—
—
—
—
3,060
Issuance of restricted stock
—
—
2,385
—
(2,385
)
—
—
—
—
Amortization of restricted stock
—
—
—
—
989
—
—
—
989
Issuance of stock options to employees
—
—
27
—
(27
)
—
—
—
—
Accretion of discount and dividends on
    Series B Convertible Preferred Stock
—
—
(1,944
)
—
—
—
—
—
(1,944
)
Net loss
—
—
—
(75,215
)
—
—
—
—
(75,215
)
Unrealized loss on available-for-sale marketable
    securities, net of realized gains and losses
—
—
—
—
—
(194
)
—
—
(194
)
Balance, January 31, 2004
42,701,767
$
427
$
412,594
$
(127,170
)
$
(1,411
)
$
(30
)
(608,275
)
$
(3,115
)
$
281,295
The accompanying notes are an integral part of
these financial statements.
F-8
ALLOY, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Years Ended January 31,
2002
2003
2004
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
$
(15,600
)
$
23,295
$
(75,215
)
Adjustments to reconcile net (loss) income to net
    cash provided by operating activities:
Depreciation and amortization
21,053
9,819
14,620
Deferred tax (benefit) expense
—
(4,606
)
4,606
Impairment of goodwill and other indefinite-lived
    intangible assets
—
—
60,638
Impairment of long-lived assets
—
—
1,315
Amortization of debt issuance costs
—
—
281
Realized (gain) loss on sales of marketable
    securities and write-off of investments, net
(658
)
97
247
Compensation charge for restricted stock
—
—
989
Compensation charge for issuance of stock options
    and common stock
209
31
12
Income tax benefit of exercised options on
    current year tax provision
—
1,224
—
Changes in operating assets and
    liabilities — net of effect of business acquisitions:
Accounts receivable, net
(2,443
)
(1,376
)
(69
)
Inventories
94
(5,918
)
16,032
Prepaid catalog costs
(456
)
238
831
Other assets
841
743
1,785
Accounts payable, accrued expenses, and other
(752
)
601
(14,070
)
Net cash provided by operating activities
2,288
24,148
12,002
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities
(28,299
)
(77,000
)
(52,198
)
Proceeds from the sales and maturities of
    marketable securities
29,080
69,000
50,640
Capital expenditures
(2,087
)
(4,317
)
(3,767
)
Sale and disposal of capital assets
—
490
45
Cash paid in connection with acquisitions of
    businesses, net of cash acquired
(45,760
)
(89,580
)
(66,728
)
Purchase of minority investment and other assets
(200
)
(750
)
—
Purchase of mailing lists, domain names and
    marketing rights
(883
)
(4,850
)
(29
)
Net cash used in investing activities
(48,149
)
(107,007
)
(72,037
)
The accompanying notes are an integral part of
these financial statements.
F-9
ALLOY, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS —  (Continued)
For the Years Ended January 31,
2002
2003
2004
(Amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock, net of
    expenses paid
60,127
54,887
—
Net proceeds from sale of Series A and
    Series B Redeemable Convertible Preferred Stock
26,710
—
—
Gross proceeds from issuance of Debentures
—
—
69,300
Debt issuance costs
—
—
(2,506
)
Exercise of options and warrants and common stock
    purchases under the employee stock purchase plan
11,467
1,924
856
Repurchase of common stock
—
—
(2,984
)
Payment of credit facility
—
—
(5,000
)
Net payments under line of credit agreements
—
—
(6,937
)
Payment of bank-loan
—
—
(38
)
Payments of capitalized lease obligation
(163
)
(383
)
(570
)
Net cash provided by financing activities
98,141
56,428
52,121
Net increase (decrease) in cash and cash
    equivalents
52,280
(26,431
)
(7,914
)
CASH AND CASH EQUIVALENTS, beginning of year
9,338
61,618
35,187
CASH AND CASH EQUIVALENTS, end of year
$
61,618
$
35,187
$
27,273
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
    FINANCING ACTIVITY:
Cash paid during the year for:
Interest
$
8
$
1
$
338
Income taxes
$
323
$
441
$
1,628
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and warrants in
    connection with acquisitions (Note 3)
$
96,648
$
11,429
$
11,171
Conversion of Series A and Series B
    Redeemable Convertible Preferred Stock into common stock
$
8,903
$
1,596
$
3,060
The accompanying notes are an integral part of
these financial statements.
F-10
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1.
Business
Alloy, Inc. ("Alloy" or the
"Company") is a media, marketing services, retail and
direct marketing company targeting Generation Y, the more
than 60 million boys and girls in the United States between
the ages of 10 and 24. Alloy's business integrates direct
mail catalogs, retail stores, print media, display media boards,
websites, on-campus marketing programs and promotional events,
and features a portfolio of brands that are well known among
Generation Y consumers and advertisers. Alloy reaches a
significant portion of Generation Y consumers through its
various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, Alloy is
able to offer advertisers targeted access to the youth market.
Additionally, Alloy's assets have enabled it to build a
comprehensive database that includes information about
approximately 26 million Generation Y consumers.
Alloy generates revenue from three principal
sources — direct marketing, retail stores, and
sponsorship and other activities. From its catalogs and
websites, Alloy sells branded products in key Generation Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Alloy's
retail stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. Alloy
generates sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach
Generation Y. Advertisers can reach Generation Y
through integrated marketing programs that include its catalogs,
books, websites, and display media boards, as well as through
promotional events, product sampling, college and high school
newspaper advertising, customer acquisition programs and other
marketing services that Alloy provides.
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 2003" refers to the fiscal year ended
January 31, 2004).
Principles of Consolidation
The consolidated financial statements include the
accounts of Alloy and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
Revenue Recognition
Direct marketing revenues are recognized at the
time products are shipped to customers, net of any promotional
price discounts and an allowance for sales returns. The
allowance for sales returns is estimated based upon Alloy's
direct marketing return policy, historical experience and
evaluation of current sales and returns trends. Direct marketing
revenues also include shipping and handling billed to customers.
Shipping and handling costs are reflected in Selling and
Marketing expenses in the accompanying consolidated statements
of operations, and approximated $11.8 million,
$14.7 million and $12.9 million for fiscal 2001,
fiscal 2002, and fiscal 2003, respectively.
Retail stores revenues are recognized at the
point of sale, net of any promotional price discounts and an
allowance for sales returns. The allowance for sales returns is
estimated based upon Alloy's retail return policy,
historical experience and evaluation of current sales and
returns trends.
Sponsorship revenues consist primarily of
advertising provided for third parties in Alloy's media
properties or via marketing events or programs that it executes
on the advertiser's behalf. Revenue under these
arrangements is 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
F-11
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
contracted services in connection with the
marketing event or program. In-catalog print advertising
revenues are recognized as earned pro rata on a monthly basis
over the estimated economic life of the catalog. Billings in
advance of advertising delivery are deferred until earned.
Other activities revenues consist of book
development/publishing revenue and other service contracts. The
revenues earned in connection with publishing activities are
recognized upon publication of such property. Any amounts
received prior to publication are treated as advances, and
classified as a current liability. Contract revenues are
recognized upon the delivery of the contracted services and when
no significant company performance obligation remains. Billings
recorded in advance of provision of services are deferred until
the services are provided. Service revenues are recognized as
the contracted services are rendered. In the case of
Alloy's advertising placement services, revenue is reported
in accordance with Emerging Issues Task Force Issue
No. 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent." Alloy 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.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
Certain balances in the prior year have been
reclassified to conform to the presentation adopted in the
current year.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid
investments with original maturities of three months or less.
Restricted Cash
Restricted cash represents the cash that backs
Alloy's line of credit. Restricted cash classified in
Current Assets on the consolidated balance sheets totaled
approximately $3.3 million as of January 31, 2004.
Restricted cash primarily represents collateral for standby
letters of credit issued in connection with the Company's
merchandise sourcing activities. The restriction will be removed
after the letters of credit expire or are cancelled.
Marketable Securities
Alloy accounts for investments in marketable
securities in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." Alloy has evaluated its investment policies
and determined that all of its investment securities are to be
classified as available-for-sale. Available-for-sale securities
are reported at fair value, with the unrealized gains and losses
reported in stockholders' equity, under the caption
"accumulated other comprehensive (loss) income."
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.
Allowance for Doubtful
    Accounts
Alloy determines its allowance for doubtful
accounts based on the evaluation of the aging of its accounts
receivable and a customer-by-customer analysis of its high-risk
customers. Its reserves contemplate its historical
F-12
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
loss rate on receivables, specific customer
situations, and the economic environments in which the Company
operates.
Unbilled Accounts Receivable
At January 31, 2003 and January 31,
2004, accounts receivable included approximately
$4.0 million and $4.3 million, respectively, of
unbilled receivables, which are a normal part of the
Company's sponsorship business, as some receivables are
normally invoiced in the month following the completion of the
earnings process.
Concentration of Credit Risk
With respect to its sponsorship and other
activities segment, Alloy provides media, marketing, advertising
placement and event promotion services to over 1,500 clients who
operate in a variety of industry sectors. Alloy extends credit
to qualified clients in the ordinary course of its business.
With respect to its direct marketing and retail stores segments,
Alloy collects payment for all merchandise, and performs credit
card authorizations and check verifications for all customers
prior to shipment or delivery. Due to the diversified nature of
its client base, it does not believe that it is exposed to a
concentration of credit risk, as its largest client accounted
for less than 2% of its fiscal 2003 consolidated revenue.
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, including derivative financial instruments, are
carried at their fair values in the accompanying consolidated
balance sheets. Alloy calculates the fair value of financial
instruments and includes this additional information in the
notes to financial statements when the fair value is different
than the book value of those financial instruments. When the
fair value approximates book value, no additional disclosure is
made. Alloy uses quoted market prices whenever available to
calculate these fair values. When quoted market prices are not
available, Alloy uses standard pricing models for various types
of financial instruments which take into account the present
value of estimated future cash flows.
Inventories
Inventories, which consist of finished goods, are
stated at the lower of cost (first-in, first-out method) or
market value.
Catalog Costs
Catalog costs consist of catalog production and
mailing costs. Catalog costs are capitalized and charged to
expense over the expected future revenue stream, which is
principally three to five months from the date the catalogs are
mailed. Deferred catalog costs as of January 31, 2003 and
2004 were approximately $2.1 million and $2.0 million
respectively. Catalog costs expensed for the years ended
January 31, 2002, 2003 and 2004 were approximately
$20.6 million, $25.9 million, and $32.0 million,
respectively, and are included within Selling and Marketing
expenses in the accompanying consolidated statements of
operations.
F-13
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
Property and Equipment
Property and equipment are stated 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
Life of the lease
Computer software and equipment
3 to 5 Years
Machinery and equipment
3 to 10 Years
Office furniture and fixtures
5 to 10 Years
Building
40 Years
Land
N/A
Goodwill and Other
    Intangibles
In accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets," goodwill
acquired resulting from a business combination for which the
acquisition date was after June 30, 2001 is no longer
amortized, but is periodically tested for impairment.
Additionally, in accordance with SFAS No. 141,
"Business Combinations," Alloy allocates the cost of
an acquired entity to the assets acquired and liabilities
assumed based on their estimated fair values including other
identifiable intangible assets, as applicable, such as trade
names, customer relationships and client lists. Information
about acquisitions can be found in Note 3.
Goodwill and Other Indefinite-Lived
    Intangible Assets Impairment
Goodwill impairment is determined using a
two-step process. The first step of the goodwill impairment test
is designed to identify potential impairment by comparing the
fair value of a reporting unit (generally, the Company's
reportable segment) with its net book value (or carrying
amount), including goodwill. If the fair value of a reporting
unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired and the second step of the impairment
test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test
compares the implied fair value of the reporting unit's
goodwill with the carrying amount of that goodwill. If the
carrying amount of the reporting unit's goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the
fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in
a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit. The
impairment test for other indefinite-lived intangible assets
consists of a comparison of the fair value of the intangible
asset with its carrying value. If the carrying value of the
intangible asset exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess.
Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. Similarly, estimates and assumptions
are used in determining the fair value of other intangible
assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and
also the magnitude of any such charge. To assist in the process
of determining goodwill impairment, the Company obtains
appraisals from an independent valuation firm. In addition to
the use of an independent valuation firm, the Company performs
internal valuation analyses and considers other market
information that is publicly available. Estimates of fair value
are primarily determined using discounted cash flows and market
comparisons. These approaches use significant estimates and
F-14
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
assumptions including projected future cash flows
(including timing), discount rates reflecting the risk inherent
in future cash flows, perpetual growth rates, determination of
appropriate market comparables and the determination of whether
a premium or discount should be applied to comparables.
In fiscal 2003, Alloy recorded a
$56.7 million charge to reduce the carrying value of
goodwill and an approximate $1.9 million and
$2.0 million charge to reduce the carrying value of other
indefinite-lived intangible assets in the direct marketing
segment and sponsorship and other segment, respectively. The
combined $60.6 million charge is reflected as a component
of operating income in the accompanying consolidated statement
of operations. Any subsequent adjustment to purchase price
related to the dELiA*s acquisition due to the finalization of
the preacquisition contingencies related to taxes (other than
income taxes) and other matters for which the Company is
awaiting additional information for its completion of purchase
price allocation, may result in an adjustment to the impairment
charge. Additional information about SFAS No. 142 is
contained in Note 4.
Impairment of Long-Lived
    Assets
In accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"), which the
Company adopted in 2002, long-lived assets, such as property,
plant, and equipment, 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. Assets to be
disposed of would be separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets
and liabilities of a disposed group classified as held for sale
would be presented separately in the appropriate asset and
liability sections of the balance sheet.
Pursuant to SFAS No. 144, the Company
performed an analysis of the recoverability of certain
long-lived assets during the fourth quarter of fiscal 2003 and
recorded an asset impairment charge of $1.3 million in the
direct marketing segment. Alloy determined that the carrying
amounts of the non-competition agreement of $144,000 related to
Old Glory, the website of $31,000 related to Old Glory and the
non-competition agreement of $23,000 related to Girlfriends LA
were impaired as the Company plans to discontinue marketing its
Old Glory and Girlfriends LA brands. In addition, the future
cash flows related to Dan's Comp could not fully support
the carrying amount of Dan's Comp's long-lived assets.
As a result, an impairment charge related to the non-competition
agreement of $209,000, property and equipment of $159,000, and
mailing list of $749,000 was recorded.
Stock Option and Employee Stock Purchase
    Plans
The Company accounts for its stock option plans
in accordance with the provisions of Accounting Principles Board
Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the then current market
price of the underlying stock exceeded the exercise price. The
Company discloses the pro forma effect on net income (loss) and
earnings per share as required by SFAS No. 123,
"Accounting for Stock-Based Compensation," recognizing
as expense over the vesting period the fair value of all
stock-based awards on the date of grant.
Shares issued under the employee stock purchase
plan are considered noncompensatory for the determination of
compensation expense under APB No. 25, but the fair value
of the benefit related to acquiring such shares at a discount is
included as compensation expense in the pro forma disclosures
required by SFAS No. 123.
The following table reflects the effect on net
(loss) income and (loss) earnings per share attributable to
common stockholders if the Company had applied the fair value
recognition provisions of SFAS No. 123 to
F-15
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
stock-based employee compensation. These pro
forma effects may not be representative of future amounts since
the estimated fair value of stock options on the date of grant
is amortized to expense over the vesting period and additional
options may be granted in future years.
Year Ended January 31,
2002
2003
2004
(Amounts in thousands,
except per share data)
Net (loss) income
$
(15,600
)
$
23,295
$
(75,215
)
Add: Total stock-based employee compensation
    costs included in reported net (loss) income, net of taxes
209
31
1,001
Less: Total stock-based employee compensation
    costs determined under fair value based method for all awards,
    net of taxes
(10,356
)
(14,290
)
(12,965
)
Pro forma net (loss) income
$
(25,747
)
$
9,036
$
(87,179
)
Basic (loss) earnings attributable to common
    stockholders per share:
As reported
$
(1.02
)
$
0.55
$
(1.87
)
Pro forma
$
(1.42
)
$
0.18
$
(2.16
)
Diluted (loss) earnings attributable to common
    stockholders per share:
As reported
$
(1.02
)
$
0.53
$
(1.87
)
Pro forma
$
(1.42
)
$
0.17
$
(2.16
)
SFAS No. 148, "Accounting for
Stock-Based Compensation — Transition and Disclosure
an amendment of FASB Statement No. 123," which was
issued in December 2002, provides alternative methods of
transition for an entity that changes to the fair value based
method of accounting for stock-based compensation and requires
more prominent disclosure of the pro forma impact on earnings
per share. The disclosure portion of the statement was adopted
in 2002. On April 22, 2003, the FASB determined that fair
value of stock-based compensation should be recognized as a cost
in the financial statements. On March 31, 2004, the FASB
issued an exposure draft that provides for a comment period,
which ends June 30, 2004. The proposed statement would be
effective for awards that are granted, modified, or settled in
fiscal years beginning after December 15, 2004. The Company
has not yet determined the impact of this statement on its
consolidated financial position, results of operations or cash
flows.
See Note 14 for additional information
concerning the Company's stock option and employee stock
purchase plans.
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 (Loss) Earnings Per Share
Basic and diluted net (loss) earnings per share
are computed and presented in accordance with
SFAS No. 128, "Earnings per Share." Basic
net (loss) earnings per share was determined by dividing net
loss by the weighted-average number of common shares outstanding
during each period. Contingently issuable shares are
F-16
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
excluded from the calculation of basic net loss
per share until the contingency related to the shares is
resolved. Diluted net income per share of the Company includes
the impact of certain potentially dilutive securities. However,
diluted net loss per share excludes the effects of potentially
dilutive securities because inclusion of these instruments would
be anti-dilutive. A reconciliation of the net income available
for common stockholders and the number of shares used in
computing basic and diluted net (loss) income per share is
provided in Note 16.
Derivative Instruments and Hedging
    Activities
In July 2000, Alloy purchased put options and
sold call options (referred to as collars) on a total of
600,000 shares of Liberty Digital, Inc. ("LDIG")
common stock, representing a portion of LDIG common stock
already owned by Alloy as available-for-sale marketable
securities. The options allowed Alloy to sell LDIG common stock
at various prices and were designated as a hedge against
potential declines in the fair value of LDIG common stock. The
options were to expire on various dates beginning January 2003
through July 2003. The net fair values of the options were
$9.3 million on January 31, 2001 and they were
classified as available-for-sale marketable securities with a
corresponding unrealized gain included in accumulated other
comprehensive income in the accompanying consolidated balance
sheet.
Alloy adopted the provisions of
SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and its related
amendments in SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging
Activities," and SFAS No. 149 "Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities." These pronouncements require companies to
reflect the fair value of all derivative instruments, including
those embedded in other contracts, as assets or liabilities in
an entity's balance sheet. Changes in fair value of
derivative instruments are generally reflected in earnings, with
the exception of certain hedging transactions, for which the
change in fair value may be accounted for as a component of
other comprehensive income, provided that certain criteria are
met as specified in these pronouncements.
In connection with the adoption of
SFAS No. 133 on February 1, 2001, Alloy
transferred 628,305 shares of Liberty Digital, Inc. common
stock together with the equity collars on 600,000 shares of
Liberty Digital common stock that were previously designated as
fair value hedges and classified as available-for-sale, to the
classification of trading securities, pursuant to
SFAS No. 133. The impact of the transfer was to
recognize earnings of $854,000 as of February 1, 2001,
representing the net unrealized holding gain for the securities
as of February 1, 2001. In March 2001, Alloy sold its
Liberty Digital shares and unwound the collars, which generated
a net loss on the sales of the securities of $196,000 resulting
in a total net gain on the sales of securities for fiscal 2001
of $658,000. As of January 31, 2004, Alloy does not have
any freestanding derivative instruments, or instruments with
embedded derivative features.
Recently Issued Accounting
    Pronouncements
The following pronouncements impact Alloy's
financial statements as discussed below:
SFAS No. 146
—
"Accounting for Costs Associated With Exit or Disposal
Activities" requires costs associated with exit or disposal
activities to be recognized and measured initially at fair value
only when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated
after December 31, 2002. Alloy adopted
SFAS No. 146 effective January 1, 2003. The
impact of SFAS No. 146 on Alloy's consolidated
financial position is further described in Note 18 to the
financial statements.
SFAS No. 148
—
"Accounting for Stock-Based Compensation —
Transition and Disclosure — An Amendment of FASB
No. 123" was issued as an amendment to FASB
No. 123, "Accounting for Stock-Based
Compensation" and provides alternative methods of
transition for an entity that voluntarily changes to the fair
value based method of accounting for stock-based employee
compensation (in accordance with SFAS No. 123). Alloy
has applied the accounting provisions of APB Opinion
No. 25, "Accounting for Stock Issued to
Employees," and Alloy has made the annual pro forma
disclosures of the effect of adopting the fair value method
F-17
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
of accounting for employee stock options and
similar instruments as required by SFAS No. 123 and
permitted under SFAS No. 148. SFAS No. 148
also requires pro forma disclosure to be provided on a quarterly
basis. Alloy began the quarterly disclosures for the first
quarter of fiscal 2003 and will continue to closely monitor
developments in the area of accounting for stock-based
compensation. On April 22, 2003, the FASB determined that
fair value of stock-based compensation should be recognized as a
cost in the financial statements. On March 31, 2004, the
FASB issued an exposure draft that provides for a comment
period, which ends June 30, 2004. The proposed statement
would be effective for awards that are granted, modified, or
settled in fiscal years beginning after December 15, 2004.
The Company has not yet determined the impact of this statement
on its consolidated financial position, results of operations or
cash flows.
SFAS No. 149
—
"Amendment of Statement 133 on Derivative Instruments
and Hedging Activities." SFAS No. 149 amends
SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and clarifies
accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. This Statement
is effective for contracts entered into or modified after
June 30, 2003, except in certain circumstances, and for
hedging relationships designated after June 30, 2003. This
statement did not have a material impact on the Company's
financial position or operating results.
SFAS No. 150
—
"Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity."
SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances),
whereby many of those instruments were previously classified as
equity. SFAS No. 150 is effective for all freestanding
financial instruments entered into or modified after
May 31, 2003 otherwise it became effective at the beginning
of the first interim period beginning after June 15, 2003.
SFAS No. 150 is to be implemented by reporting the
cumulative effect of a change in accounting principle for
financial instruments created before the issuance of
SFAS No. 150 and still existing at the beginning of
the interim period of adoption. Alloy adopted the provisions of
SFAS No. 150 effective August 1, 2003. The
adoption of SFAS No. 150 did not have an impact on the
financial statements as Alloy's Series B Convertible
Preferred Stock, which is the only applicable financial
instrument of Alloy, is outside the scope of
SFAS No. 150.
FASB Interpretation
No. 45
—
"Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including the Indirect Guarantees of
Indebtedness to Others" ("FIN No. 45"). FIN
No. 45 sets forth the disclosures to be made by a guarantor
in its interim and annual financial statements about its
obligations under guarantees issued. FIN No. 45 also
clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement
provisions of FIN No. 45 are applicable to guarantees
issued or modified after December 31, 2002. The application
of FIN No. 45 did not result in additional disclosure in
Alloy's fiscal 2003 financial statements and did not have a
material impact on its fiscal 2003 consolidated results of
operations or financial position.
FASB Interpretation
No. 46
—
"Consolidation of Variable Interest Entities."
("FIN 46"). FIN 46 requires the
consolidation of entities that cannot finance their activities
without the support of other parties and that lack certain
characteristics of a controlling interest, such as the ability
to make decisions about the entity's activities via voting
or similar rights. An entity that consolidates a variable
interest entity is the primary beneficiary of the entity's
activities. FIN 46 applied immediately to variable interest
entities created after January 31, 2003, and required
application in the first period ending after December 15,
2003 for entities in which an enterprise holds a variable
interest entity that it acquired before February 1, 2003.
The adoption of FIN 46 did not have a material impact on
the Company's consolidated results of operations or
financial position. In December of 2003, the FASB revised
FIN 46 ("FIN 46R"), which delayed the
required implementation date for variable interest entities
until the end of the first reporting period that ends after
March 15, 2004. FIN 46R applies to our financial
F-18
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
statements for the period ending April 30,
2004. We do not believe the adoption of FIN 46R will have a
material impact on our consolidated results of operations or
financial position.
Emerging Issues Task Force
02-16
— "Accounting by
a Customer (including a Reseller) for Certain Consideration
Received from a Vendor" ("EITF 02-16").
EITF 02-16 addresses the accounting by a reseller for
consideration received from a vendor. A consensus was reached
that cash consideration is presumed to be a reduction in the
price of a vendor's product that should be recognized as a
reduction of cost of sales. However, this presumption can be
overcome when the consideration received is for the
reimbursement of specific, identifiable and incremental costs of
the reseller. In that event, the consideration, subject to a
threshold, is recognized as a reduction in selling, general and
administrative expenses. The provisions of EITF 02-16 are
effective for all new arrangements, or modifications to existing
arrangements, entered into after December 31, 2002. The
release did not have a significant effect on the Company's
results of operations or financial position.
Emerging Issues Task Force
02-17
— "Recognition of
Customer Relationship Intangible Assets Acquired in a Business
Combination" ("EITF 02-17"). EITF 02-17
may impact Alloy's acquisitions as it establishes that
customer lists, customer contracts and the related customer
relationships are intangible assets to be recognized as assets
apart from goodwill. Effective October 25, 2002, the
Company adopted the provisions of this EITF for the business
combinations consummated and goodwill impairment test performed.
As a result of adopting these provisions, Alloy identified
customer relationships as part of its application of purchase
accounting. This identification of customer relationships
reduced the amount of recorded goodwill relating to the
acquisitions. As a result, the amount of goodwill subject to the
annual impairment test was reduced.
Emerging Issues Task Force
03-01
— "The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments" ("EITF 03-01"). EITF 03-01
establishes additional disclosure requirements for each category
of FAS 115 investments in a loss position. EITF 03-01
requires disclosure of the aggregate amount of unrealized
losses, and the aggregate related fair value of their
investments with unrealized losses. Those investments are
required to be segregated by those in a loss position for less
than twelve months and those in a loss position for greater than
twelve months. Additionally, certain qualitative disclosures
should be made to clarify a circumstance whereby an
investment's fair value that is below cost is not
considered other-than-temporary. The disclosure requirements
were effective for the fiscal year ended January 31, 2004.
The accounting guidance of EITF 03-01 will be effective for
reporting periods beginning after June 15th and is not
expected to have a material effect on the Company's results
of operations or financial position.
In January 2003, the SEC issued a new disclosure
regulation, "Conditions for Use of Non-GAAP Financial
Measures" ("Regulation G"), which is
effective for all public disclosures and filings made after
March 28, 2003. Regulation G requires public companies
that disclose or release information containing financial
measures that are not in accordance with GAAP to include in the
disclosure or release a presentation of the most directly
comparable GAAP financial measure and a reconciliation of the
disclosed non-GAAP financial measure to the most directly
comparable GAAP financial measure. Alloy became subject to
Regulation G in fiscal 2003 and believes that it is in
compliance in all material respects with the new disclosure
requirements.
3.
Acquisitions
Alloy completed four acquisitions during fiscal
2000, seven acquisitions during fiscal 2001, six acquisitions
during fiscal 2002 and three significant acquisitions during
fiscal 2003. Alloy's acquisition strategy is to purchase
companies that can reach Generation Y consumers through
media, marketing services and/or direct marketing. In executing
its acquisition strategy, one of the primary drivers in
identifying and executing a specific transaction is the
existence of, or the ability to, expand the Company's wide
range of media and marketing assets so that advertisers and
marketers will have the ability to target the approximate
60 million Generation Y consumers in many different
ways.
F-19
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
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 allocations of the purchase prices for the
fiscal 2003 acquisitions are subject to revision based on the
final determination of the fair value of the assets acquired and
liabilities assumed as of the dates of acquisition. For all
acquisitions that involve escrowed shares, the value of these
shares has been included in the initial purchase price
allocation. Any subsequent changes are reflected as an
adjustment to goodwill. The amounts allocated to goodwill for
certain acquisitions may also change in the future pending the
outcome of other contingent arrangements, such as earn-outs, as
described below. A description of Alloy's significant
acquisitions completed during fiscal 2001, fiscal 2002 and
fiscal 2003 is as follows:
Significant Fiscal 2001
    acquisitions
CASS Communications
In August 2001, Alloy acquired of all the capital
stock of CASS Communications, Inc. ("CASS"), an
Illinois corporation, founded in 1968, with a principal place of
business in Evanston, Illinois. CASS's contracted media and
promotional channels, including college and high school
newspapers, reach students on college and high school campuses
via outdoor and display media assets, and provide marketers with
full service event production and promotion capability. To
complete the acquisition of CASS, Alloy exchanged
1,720,392 shares of unregistered common stock, having a
value of $23.1 million, of which 258,059 shares were
placed in escrow in accordance with the terms of the related
agreements; $9.7 million in cash; additional shares of
Alloy common stock if CASS exceeded certain earnings targets
over the 12-month period following the acquisition; and a
contingent note, which note expired in April 2002 without
payments being made thereunder. In addition, no additional
shares of Alloy common stock were issued since the earnings
targets were not reached over the 12-month period following the
acquisition. In August 2002, the 258,059 shares of common
stock held in escrow were released. Cash paid during fiscal 2002
for costs related to the acquisition was approximately
$1.8 million. The total cost of this acquisition, including
acquisition costs was $35.4 million. In connection with the
acquisition, Alloy has recorded approximately $36.2 million
of goodwill representing the net excess of purchase price over
the fair value of the net assets acquired. In addition, Alloy
identified specific intangible assets consisting of the
following (amounts in thousands):
Fair Value
Useful Life
Non-competition agreements
200
3 years
Trademarks
400
indefinite
$
600
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded a $400,000 impairment of CASS's trademarks. The
results of CASS's operations have been included in
Alloy's financial statements since August 2001.
Dan's Competition
In September 2001, Alloy acquired of all of the
outstanding capital stock of Dan's Competition, Inc.
("Dan's Comp"), an Indiana corporation,
incorporated in 1996, with a principal place of business in Mt.
Vernon, Indiana. Dan's Comp is a direct marketer to teenage
boys and a distribution brand in the action sports market. To
complete the acquisition of Dan's Comp, Alloy exchanged
2,081,037 shares of unregistered common stock, having a
value of $25.2 million (or $12.34 per share on the
transaction date) of which 370,370 shares were placed
F-20
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
in escrow in accordance with the terms of the
related agreements; $11.0 million in cash; and two
contingent promissory notes, which notes expired in November
2002 without any payments being made thereunder. The escrowed
shares were released in October 2002. An additional
37,037 shares were issued in connection with a final
working capital determination. The resulting additional purchase
price of $721,000 ($19.47 per share) has been allocated to
goodwill. The escrowed shares were released in October 2002. The
total cost of this acquisition, including acquisition costs, was
$37.0 million. In connection with the acquisition, Alloy
has recorded approximately $27.8 million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
Fair Value
Useful Life
Websites
$
50
3 years
Mailing lists
3,500
4 years
Non-competition agreements
800
5 years
Trademark
1,600
indefinite
$
5,950
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded an approximate $1.1 million impairment charge
related to Dan's Comp's trademark. In addition, Alloy
determined that the non-competition agreement, property and
equipment, and mailing list were impaired and recorded charges
for $209,000, $159,000 and $749,000, respectively. The results
of Dan's Comp's operations have been included in
Alloy's financial statements since September 2001.
360 Youth
In November 2001, Alloy acquired substantially
all of the assets of the 360 Youth business of MarketSource
Corporation, a Delaware corporation. The 360 Youth business
focuses on providing marketing and promotional services targeted
at teenagers and young adults, including acquiring and placing
advertising and other promotional materials or otherwise
targeting the Generation Y market in all forms of media,
and developing, staging and promoting events targeted at the
Generation Y market. Alloy acquired 360 Youth to expand its
range of media assets. To complete the acquisition of 360 Youth,
Alloy exchanged 1,839,520 shares of unregistered common
stock, having a value of $30.1 million of which
283,286 shares were placed in escrow in accordance with the
terms of the related agreements; $13.4 million in cash; and
warrants to purchase up to 110,000 shares of Alloy common
stock. In accordance with its terms, one warrant may be
exercised at a price of $13.78 per share with respect to
50,000 shares of common stock on or after November 26,
2002 and prior to November 26, 2007, and with respect to
the remaining 50,000 shares of common stock, on or after
November 26, 2003 and prior to November 26, 2008. The
second warrant for 10,000 shares is currently exercisable
at a price of $13.78 per share and expires on
November 25, 2007. The fair value of the warrants was
established as $950,000 using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%,
volatility of 50%, risk-free interest rate of 4.61% and expected
life of 6.5 years. In fiscal 2002, Alloy paid $645,000 in
cash as additional consideration under the earnout provisions of
the acquisition agreement. Additionally in March 2003, Alloy
issued as additional consideration 1,545,947 shares of
Alloy common stock, having a value of $7.7 million because
360 Youth exceeded certain earnings targets over the 12-month
period following the acquisition. The escrowed shares were
released in November 2002 after the resolution of all
acquisition-related contingencies. The total cost of this
acquisition, including acquisition costs, was
$53.5 million. In connection with the acquisition, Alloy
has recorded approximately $50.1 million of goodwill
representing the net excess of purchase price over
F-21
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
the fair value of the net assets acquired. In
addition, Alloy identified specific intangible assets consisting
of the following (amounts in thousands):
Fair Value
Useful Life
Websites
$
10
3 years
Non-competition agreements
1,300
3 years
Trademarks
1,400
indefinite
$
2,710
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The results of 360 Youth's operations have been
included in Alloy's financial statements since November
2001.
Significant Fiscal 2002
    Acquisitions
Girlfriends LA
In March 2002, Alloy acquired GFLA, Inc.
("Girlfriends LA"), a California corporation that is a
direct marketer of apparel to young girls. Alloy acquired all of
the issued and outstanding shares of capital stock of
Girlfriends LA for $7.2 million in cash, of which $875,000
initially was placed in escrow ($100,000 was released to Alloy
to cover certain acquisition liabilities in May, 2002 and in
June 2003 $530,000 was released to the sellers and $245,000 was
returned to Alloy), 20,000 shares of Alloy common stock
valued at $283,000, and warrants to purchase up to
100,000 shares of Alloy common stock valued at $691,000.
Total cash paid including acquisition costs, net of cash
acquired approximated $7.8 million. The total cost of this
acquisition, including acquisition costs, was $8.8 million.
Alloy recorded approximately $7.5 million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
Fair Value
Useful Life
Websites
$
146
2 years
Mailing lists
550
4 years
Non-competition agreements
60
3 years
Trademarks
490
indefinite
$
1,246
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
determined that the trademarks of $490,000 were impaired. In
addition, Alloy determined that the remaining carrying amount of
the non-competition agreement of $23,000 was impaired. As a
result, Alloy recognized the impairment expense in its fourth
quarter of fiscal 2003. The website was previously fully
amortized and the mailing lists will be used by the Alloy and
dELiA*s direct marketing brands. The results of Girlfriends
LA's operations have been included in Alloy's
financial statements since March 2002. Alloy plans to
discontinue the production of the Girlfriends LA catalog during
fiscal 2004.
Student Advantage Marketing Group
In May 2002, Alloy acquired substantially all of
the assets of the events and promotions business of Student
Advantage, Inc. in exchange for $6.5 million in cash, and
up to $1.5 million of future performance-based cash
consideration. The $1.5 million cash performance-based
consideration has been paid in full. In addition, the parties
agreed to extend an escrow created in connection with another
acquisition between them and allow Alloy
F-22
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
to make claims against such escrow for breaches
by Student Advantage of the Student Advantage Marketing Group
Asset Purchase Agreement, which escrow has been released. Total
cash paid including acquisition costs, net of cash acquired,
approximated $8.2 million. The total cost of this
acquisition, including acquisition costs, was $8.2 million.
Alloy has recorded approximately $7.0 million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
Fair Value
Useful Life
Client relationships
1,600
2.5 years
Non-competition agreements
100
3 years
$
1,700
The results of Student Advantage Marketing
Group's operations have been included in Alloy's
financial statements since May 2002.
Market Place Media
In July 2002, Alloy acquired all of the issued
and outstanding stock of MPM Holding, Inc. ("MPM
Holding"), whose sole operating asset was Armed Forces
Communications, Inc., d/b/a/ Market Place Media, a major media
placement and promotions company serving the college,
multi-cultural and military markets through print, broadcast,
out-of-home and event media. As part of the Company's
acquisition strategy, Market Place Media expands the
Company's media assets and provides advertisers with a
greater access to the Generation Y consumer. Alloy paid
$48.0 million in cash to complete the acquisition, subject
to adjustment based upon the outcome of a final working capital
audit, $4.3 million of which was placed into escrow as
security for the satisfaction of the indemnification obligations
of MPM Holdings, and $1.0 million of which was placed into
a supplemental escrow as security for the collection of certain
accounts receivable of Armed Forces Communications, Inc. The
$5.3 million placed into escrow was released during 2003.
Alloy paid $1.5 million as part of the working capital
adjustment during the second half of fiscal 2002 and paid an
additional $1.6 million as a working capital adjustment in
May 2004. As of January 31, 2004, total cash paid including
acquisition costs, net of cash acquired approximated
$50.1 million. The total cost of this acquisition,
including acquisition costs and net of cash acquired, was
$52.2 million. Alloy has recorded approximately
$43.7 million of goodwill representing the net excess of
purchase price over the fair value of the net assets acquired.
In addition, Alloy identified specific intangible assets
consisting of the following (amounts in thousands):
Fair Value
Useful Life
Websites
$
50
3 years
Client relationships
2,400
3 years
Non-competition agreements
700
3 years
Trademarks
4,700
indefinite
$
7,850
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded an approximate $1.0 million impairment charge of
Market Place Media's trademarks. The results of Market
Place Media's operations have been included in Alloy's
financial statements since July 2002.
YouthStream Media Networks
In August 2002, Alloy acquired substantially all
of YouthStream Media Networks, Inc.'s high school and
college targeted marketing and media assets, which included over
20,000 out-of-home display media boards in
F-23
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
high schools and on college campuses, media
placement capabilities in college and high school newspapers,
and event marketing services and contracts. Alloy paid
$7.0 million in cash to complete the acquisition, subject
to adjustment based upon the outcome of a final working capital
audit. Alloy paid $231,000 for the working capital adjustment
during fiscal 2002. Total cash paid including acquisition costs,
net of cash acquired approximated $7.5 million. The total
cost of this acquisition, including acquisition costs, was
$7.5 million. Alloy has recorded approximately
$4.5 million of goodwill representing the net excess of
purchase price over the fair value of the net assets acquired.
In addition, Alloy identified specific intangible assets
consisting of the following (amounts in thousands):
Fair Value
Useful Life
Websites
$
25
2.5 years
Client relationships
800
2.5 years
Non-competition agreements
100
1.5 years
Trademarks
135
indefinite
$
1,060
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded a $135,000 impairment charge of YouthStream Media
Networks' trademark. The results of YouthStream Media
Networks' operations have been included in Alloy's
financial statements since August 2002.
Career Recruitment Media
In November 2002, Alloy acquired substantially
all of the assets of Career Recruitment Media, Inc., an Illinois
corporation ("CRM"). Alloy paid approximately
$2.3 million in cash and issued a warrant valued at $43,000
to purchase up to 10,000 shares of Alloy common stock to
complete the acquisition. In connection with this acquisition,
Alloy was given the option to purchase the remaining assets of
Career Recruitment Media, which option it exercised in September
2003. Total cash paid including acquisition costs, net of cash
acquired approximated $2.4 million. The total cost of this
acquisition, including acquisition costs, was $2.5 million.
Alloy has recorded approximately $2.2 million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
Fair Value
Useful Life
Websites
$
50
33 months
Client relationships
100
33 months
Non-competition agreements
50
30 months
Trademarks
75
indefinite
$
275
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The results of CRM's operations have been
included in Alloy's financial statements since November
2002.
Old Glory
In December 2002, Alloy acquired Old Glory
Boutique Distributing, Inc. ("Old Glory"), a
Connecticut corporation, a direct marketer of music and
entertainment lifestyle products including apparel, accessories
and collectibles through direct mail catalogs and the internet.
Alloy paid approximately $9.6 million to complete the
F-24
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
acquisition, of which $1.2 million was held
in escrow. In April 2004, $300,000 of such escrowed cash was
released to Alloy and the remaining escrowed funds were released
to the sellers. Total cash paid including acquisition costs, net
of cash acquired, approximated $10.1 million. The total
cost of this acquisition, including acquisition costs, net of
cash acquired, approximated $10.1 million. Alloy has
recorded approximately $9.5 million of goodwill
representing the net excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
Fair Value
Useful Life
Websites
$
50
3 years
Mailing lists
450
7 years
Non-competition agreements
200
4 years
Trademarks
300
indefinite
$
1,000
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. During the fourth quarter of fiscal 2003, Alloy
recorded an approximate $300,000 impairment charge related to
Old Glory's trademarks. In addition, Alloy determined that
the carrying amounts of the non-competition agreement of
$144,000 and the website of $31,000 were impaired. As a result,
Alloy recognized the associated expense of $175,000 in its
fourth quarter of fiscal 2003. The mailing lists will be used by
the other Alloy direct marketing brands. The results of Old
Glory's operations have been included in Alloy's
financial statements since December 2002. Alloy plans to
discontinue the production of the Old Glory catalog during
fiscal 2004.
Significant Fiscal 2003
    Acquisitions
OCM Direct, Inc., Collegiate Carpets, Inc. and
    Carepackages, Inc.
In May 2003, Alloy acquired substantially all of
the assets and liabilities of OCM Direct, Inc., Collegiate
Carpets, Inc. and Carepackages, Inc., wholly owned subsidiaries
of Student Advantage, Inc., which companies were in the business
of direct marketing to college students and their parents a
variety of college or university endorsed products. These
businesses have been transferred to Alloy's wholly owned
subsidiaries, On Campus Marketing, LLC, Collegiate Carpets, LLC
and Carepackages, LLC. Alloy paid approximately
$15.6 million in cash $1.0 million of which was placed
into escrow, and assumed a $5.0 million credit facility to
complete the acquisition. As of January 31, 2004, the total
cash paid including acquisition costs, net of cash acquired,
approximated $15.4 million. The total cost of this
acquisition, net of cash acquired and including acquisition
costs, is estimated to be $15.5 million. In addition, Alloy
paid off the $5.0 million credit facility during the second
quarter. Alloy has recorded approximately $16.3 million of
goodwill representing the excess of purchase price over the fair
value of the net assets acquired. In addition, Alloy identified
specific intangible assets consisting of the following (amounts
in thousands):
Fair Value
Useful Life
Websites
$
425
3 years
Customer relationships
2,000
8 years
Non-competition agreements
811
48-58 months
Trademarks
900
indefinite
$
4,136
F-25
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The operations of this acquisition have been included
in Alloy's financial statements since May 2003.
dELiA*s
In September 2003, Alloy acquired all of the
outstanding stock of dELiA*s Corp. ("dELiA*s"), a
multi-channel retailer that markets apparel, accessories and
home furnishings to teenage girls and young women. dELiA*s
reaches its customers through the dELiA*s catalog,
www.dELiAs.com and 61 dELiA*s retail stores. Through the
acquisition of dELiA*s, Alloy seeks to generate financial
savings by consolidating operations and eliminating duplicate
functions, improve catalog circulation productivity by combining
name databases and establish a retail store presence that may be
expanded over time. These key transaction drivers supported the
acquisition price and the associated goodwill resultant from the
purchase of dELiA*s. Alloy paid approximately $50.1 million
to complete the acquisition. As of January 31, 2004, the
total cash paid including acquisition costs, net of cash
acquired, approximated $46.2 million. The total cost of
this acquisition, net of cash acquired and including acquisition
costs, was approximately $47.0 million, of which
$43.6 million was recorded as goodwill. Estimated
acquisition costs consist of professional fees of approximately
$2.8 million and other costs of approximately $600,000. The
results of dELiA*s' operations have been included in
Alloy's financial statements since September 2003.
Allocation of Purchase Price
The purchase price has been allocated based on an
estimate of the fair value of assets acquired and liabilities
assumed. To the extent that the Company's estimates need to
be adjusted for the preacquisition contingencies predominately
related to taxes (other than income taxes) and other matters for
which the Company is awaiting additional information for its
completion of purchase price allocation, it will make such
adjustments.
The purchase price for dELiA*s was allocated as
follows (in thousands):
Book value of net liabilities acquired
$
(3,767
)
Adjusted for write-off of intangible assets and
    deferred financing cost
230
Adjusted book value of net liabilities acquired
(3,997
)
Remaining allocation:
Intangible assets(a)
4,615
Goodwill(b)
43,616
Restructuring costs(c)
(6,523
)
Adjustment to fair value property, plant and
    equipment
(2,542
)
Reduction of deferred revenues related to a
    licensing agreement that has no future legal performance
    obligation
16,500
Reduction of deferred rent liability in
    conjunction with the fair valuation of leases
3,173
Fair value of leasehold liabilities
(1,360
)
Total purchase price allocation
$
53,482
Since Alloy's initial allocation of the
purchase price in the third quarter of fiscal 2003, its
estimates have been revised. The adjusted estimated book value
of net liabilities assumed increased $3.2 million primarily
related to sales tax liabilities. In addition, estimates have
been revised for intangible assets ($285,000 decrease),
property, plant, and equipment ($2.5 million decrease),
leasehold liabilities ($1.4 million increase), legal costs
F-26
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
($114,000 decrease) and goodwill
($7.3 million increase). These revisions reflect
Alloy's greater understanding of dELiA*s net liabilities
since the acquisition date.
(a) Trademarks are deemed to have indefinite
lives and therefore are not amortized but are reviewed for
impairment annually. The fair values of the amortizable
intangible assets are as follows (in thousands):
Useful Life
Fair Value
(Years)
Websites
$
1,300
3
Mailing Lists
25
6
Non-competition Agreements
390
4.25
Leasehold Interests
300
6-7
Trademarks
2,600
indefinite
$
4,615
(b) In accordance with the requirements of
SFAS No. 142, "Goodwill and Other Intangible
Assets," the goodwill and the acquired indefinite-lived
intangibles associated with the acquisition will not be
amortized. Goodwill resulting from this acquisition was
allocated to the direct marketing segment during the fourth
quarter of fiscal 2003.
(c) As of the completion of the acquisition,
Alloy management began to assess and formulate a plan to exit
certain activities of dELiA*s. The plan, as initially adopted,
specifically identified significant actions to be taken to
complete the plan and activities of dELiA*s that will not be
continued, including the method of disposition and location of
those activities. At the completion of the acquisition, Alloy
was contractually obligated to pay certain termination costs to
three executives of dELiA*s. Management has estimated
liabilities related to the net present value of these
termination costs to be approximately $2.7 million, of
which approximately $1.3 million has been paid as of
January 31, 2004. The remaining costs have resulted in an
increase to short-term and long-term liabilities, which are
estimated to be approximately $100,000 and $1.3 million,
respectively. In addition, upon completion of its assessment,
management estimated $3.8 million of store exit and lease
costs and severance related to 17 dELiA*s retail stores. These
expenses are accrued as current liabilities as of
January 31, 2004.
F-27
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The following dELiA*s condensed balance sheet
discloses the amounts assigned to each major asset and liability
at September 4, 2003, the date of acquisition (amounts in
thousands):
As of
9/4/2003
ASSETS
Current assets
$
28,652
Fixed assets
20,161
Other assets
130
Intangible assets
4,615
Goodwill
43,616
Total Assets
$
97,174
LIABILITIES
Accounts payable and other current liabilities
$
32,409
Short-term debt
6,911
Notes payable
2,987
Other liabilities
1,385
Total Liabilities
$
43,692
NET ASSETS ACQUIRED
$
53,482
CollegeClub.com
In November 2003, Alloy acquired CollegeClub.com,
a website providing e-mail, clubs, chat, personal sites, student
discounts and advice. Alloy paid approximately $800,000 to
complete the acquisition and could pay an additional $400,000 of
cash consideration based on future performance. The total
purchase price of this acquisition, including acquisition costs,
was approximately $1.3 million. Total cash paid, including
acquisition costs, approximated $853,000. Alloy has recorded
approximately $1.1 million of goodwill representing the net
excess of purchase price over the fair value of the net assets
acquired. In addition, Alloy identified specific intangible
assets consisting of the following (amounts in thousands):
Fair Value
Useful Life
Websites
$
260
3 years
Customer relationships
150
3 years
Non-competition agreements
40
2 years
Trademarks
25
indefinite
$
475
Trademarks are deemed to have indefinite lives
and therefore are not amortized but are reviewed for impairment
annually. The results of CollegeClub.com's operations have
been included in Alloy's financial statements since
November 2003.
Unaudited Pro Forma Financial
    Information
The following unaudited pro forma financial
information presents the consolidated operations of the Company
as if the fiscal 2003 acquisition of dELiA*s had occurred as of
the beginning of fiscal 2003 for the fiscal 2003 results and as
of the beginning of fiscal 2002 for the fiscal 2002 results. The
unaudited pro forma
F-28
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
information excludes the impact of all other
fiscal 2003 acquisitions since they are not considered to be
material to the Company's consolidated financial statements.
The following unaudited pro forma financial
information is provided for informational purposes only and
should not be construed to be indicative of the Company's
consolidated results of operations had the acquisition been
consummated on the date assumed and does not project the
Company's results of operations for any future period:
For the Years Ended
January 31,
2003
2004
(In thousands, except
per share data)
(Unaudited)
Net revenue
$
436,962
$
439,460
Net (loss) before cumulative effect of change in
    accounting principle
(13,540
)
(100,318
)
Net income (loss)
1,843
(100,318
)
Preferred stock dividend and accretion
2,100
1,944
Net income (loss) available to common stockholders
$
(257
)
$
(102,262
)
Net (loss) attributable to common stockholders
    before cumulative effect of change in accounting principle per
    share:
Basic
$
(0.41
)
$
(2.48
)
Diluted
$
(0.41
)
$
(2.48
)
Net income (loss)available to common stockholders
    per share:
Basic
$
(0.01
)
$
(2.48
)
Diluted
$
(0.01
)
$
(2.48
)
The unaudited pro forma financial information
above reflects the following pro forma adjustments:
1. Elimination of historical amortization
    expense recorded by legacy dELiA*s related to definite-lived
    intangible assets.
2. Recording of:
•
amortization expense related to the estimated
    fair value of identified intangible assets from the purchase
    price allocation, which are being amortized over their estimated
    useful lives which range from 2 to 6 years, of
    approximately $529,000 in fiscal 2002 and $309,000 in fiscal
    2003;
•
the adjustment to increase interest expense from
    borrowings to finance the dELiA*s acquisition by approximately
    $2.9 million in fiscal 2002 and $1.7 million in fiscal
    2003;
•
the adjustment to decrease deferred rent expense
    by approximately $447,000 in fiscal 2002 and $266,000 in fiscal
    2003.
•
the adjustment to decrease depreciation expense
    by approximately $500,000 in fiscal 2002 and $292,000 in fiscal
    2003.
4.
Goodwill and Intangible Assets
In June 2001, the FASB issued
SFAS No. 142, "Goodwill and Other Intangible
Assets." Under SFAS No. 142, goodwill and
intangible assets with indefinite lives that were acquired after
June 30, 2001 are no longer amortized but instead evaluated
for impairment at least annually. With respect to goodwill and
intangibles with indefinite lives that were acquired prior to
July 1, 2001, Alloy adopted the nonamortization provisions
of SFAS No. 142 as of February 1, 2002.
F-29
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The following table reconciles previously
reported net income as if the provisions of
SFAS No. 142 had been in effect for the year ended
January 31, 2002:
Year Ended
January 31, 2002
(Amounts in thousands
except per share data)
Reported net (loss)
$
(15,600
)
Add back: goodwill amortization
17,741
Adjusted net income
$
2,141
Non-cash charge attributable to beneficial
    conversion feature of preferred stock issued
6,745
Preferred stock dividends and accretion of
    discount
3,013
Net (loss) attributable to common stockholders
$
(7,617
)
Basic (loss) attributable to common stockholders
    per share as reported
$
(1.02
)
as adjusted
$
(0.31
)
Diluted (loss) attributable to common
    stockholders per share as reported
$
(1.02
)
as adjusted
$
(0.31
)
Impairment of Goodwill and Indefinite-Lived
    Intangible Assets
Due to the decline in catalog response rates,
operating profit and cash flows were lower than expected during
fiscal 2003. Based on that trend, as well as the addition and
integration of dELiA*s, the cash flow projections could not
support the goodwill within the direct marketing reporting unit.
During the fourth quarter of fiscal 2003, a goodwill impairment
charge of $56.7 million was recognized since the carrying
amount of the reporting unit's goodwill exceeded the
implied fair value of the goodwill. Any subsequent adjustment to
purchase price related to the dELiA*s acquisition resultant from
the finalization of the preacquisition contingencies related to
taxes (other than income taxes) and certain other matters for
which the Company is awaiting additional information for its
completion of purchase price allocation, may result in an
adjustment to the impairment charge. Also, during the fourth
quarter of fiscal 2003, an impairment charge for trademarks of
$1.9 million and $2.0 million was recognized in the
direct marketing segment and the sponsorship and other segment,
respectively. In the direct marketing segment, a trademark
impairment charge of $1.1 million was recognized since the
carrying value of the reporting unit's trademarks was
greater than the fair value of the reporting unit's
trademarks primarily as a result of lower future estimated
operating profit and cash flows related to the impaired
trademarks. An additional $800,000 impairment charge was
recognized due to the discontinued use of certain trademarks. In
the sponsorship and other segment, an impairment charge of
$1.0 million was recorded since the carrying value of the
reporting unit's trademarks was greater than the fair value
of the reporting unit's trademarks primarily as a result of
lower future estimated operating profit and cash flows related
to the impaired trademarks. An additional $1.0 impairment charge
was recognized due to the discontinued use of certain
trademarks. Estimates of trademark fair value were determined
using the Income Approach. Refer to Note 2, "Summary
of Accounting Policies, Goodwill and Other Indefinite-Lived
Intangible Assets Impairment," for further details
regarding the procedure for evaluating goodwill for impairment.
F-30
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The changes in the carrying amount of goodwill
for the years ended January 31, 2003 and January 31,
2004 are as follows (in thousands):
2003
2004
Gross balance, beginning of year
$
205,120
$
296,999
Goodwill acquired during the year
91,879
61,191
Impairment of goodwill
—
(56,748
)
Gross balance, end of the year
296,999
301,442
Accumulated goodwill amortization, prior to the
    adoption of SFAS 142
(26,646
)
(26,646
)
Net balance, end of year
$
270,353
$
274,796
Intangible Assets Related to Businesses
    Acquired
The acquired intangible assets as of
January 31, 2003 and January 31, 2004 were as follows:
January 31, 2003
January 31, 2004
Gross
Gross
Weighted Average
Carrying
Accumulated
Carrying
Accumulated
Amortization
Amount
Amortization
Amount
Amortization
Period (Years)
(Amounts in thousands)
Amortizable intangible assets:
Mailing Lists
$
4,553
$
1,314
$
3,858
$
2,416
4.3
Noncompetition Agreements
3,695
1,074
5,060
2,527
3.5
Marketing Rights
5,650
3,052
5,650
5,650
2.3
Websites
841
331
2,890
961
2.9
Client Relationships
4,000
378
7,405
2,441
3.9
Leasehold Interests
—
—
300
41
6.5
$
18,739
$
6,149
$
25,163
$
14,036
Nonamortizable intangible assets:
Trademarks
$
9,625
—
$
9,535
—
N/A
In April 2002, Alloy purchased a two-year right
to serve as the agent for selling, licensing and marketing the
media assets of a youth-oriented website for $4.9 million.
This contract was amended in May 2003 and then again in
September 2003. The Company continually monitors the operating
performance of this contract. In the fourth quarter of fiscal
2002, it was determined that based on future cash flow
estimates, the carrying amount of the marketing rights would not
be recoverable over the remaining term of the contract.
Accordingly, an impairment charge of $1.0 million was
recognized as additional amortization expense in the sponsorship
segment, representing the excess of the net carrying amount of
the intangible asset over its estimated fair value, determined
as the discounted estimated future cash flows under the
contract. This two-year right was fully amortized by the end of
the fourth quarter of fiscal 2003.
The weighted average amortization period for
acquired intangible assets subject to amortization is
approximately 3.4 years. The amortization expense related
to fiscal 2001, 2002 and 2003 was $574,000, $5.6 million
and $7.9 million, respectively. The estimated remaining
amortization expense for each of the next five fiscal years
through the fiscal year ending January 31, 2009 is
$5.4 million, $2.7 million, $1.1 million,
$543,000 and $398,000, respectively.
F-31
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
5.     Exchange
Transaction
On April 14, 2000, Alloy entered into a
financial and strategic arrangement with Liberty Digital, Inc.
("LDIG"), a subsidiary of Liberty Media Group, Inc.
("LMG"), which has since been merged into LMG
pursuant, to which Alloy issued 2,922,694 shares of its
common stock having a fair value of $35.1 million, or
$12 per share, to a subsidiary of LDIG in exchange for
$10 million in cash and 837,740 shares of LDIG common
stock having a fair value of $19.5 million. Alloy
subsequently collared 600,000 LDIG shares (see Note 2
"Derivative Instruments and Hedging Activities"). As
of January 31, 2004, Alloy holds no LDIG or LMG shares. The
Alloy common shares issued to LDIG represented 19.9% of the then
issued and outstanding common stock of Alloy immediately prior
to the transaction. Subsequent to the transaction, LDIG had a
16.6% ownership interest in Alloy's issued and outstanding
common stock. As a result of subsequent issuances of Alloy
common stock, as of January 31, 2004, LMG had an ownership
interest in Alloy of approximately 6.94%.
6.     Marketable
Securities
Fair values of taxable auction securities,
tax-advantaged auction securities, corporate debt securities and
equity securities are based upon quoted market prices. The
following is a summary of available-for-sale marketable
securities at January 31, 2003 and 2004, respectively:
Gross
Gross
Unrealized
Unrealized
Estimated
Amortized
Holding
Holding
Fair
Cost
Gains
Losses
Value
(Amounts in thousands)
January 31, 2003
Taxable auction securities
$
2,000
$
—
$
—
$
2,000
Corporate debt securities
21,002
166
—
21,168
Equity securities
3
—
(2
)
1
Total available-for-sale securities
$
23,005
$
166
$
(2
)
$
23,169
January 31, 2004
Taxable auction securities
$
4,700
$
—
$
—
$
4,700
Tax-advantaged auction securities
6,000
—
—
6,000
Corporate debt securities
13,926
3
(31
)
13,898
Equity securities
3
—
(2
)
1
Total available-for-sale securities
$
24,629
$
3
$
(33
)
$
24,599
The amortized cost and estimated fair value of
debt securities available-for-sale at January 31, 2004 by
contractual maturity are as follows:
Gross
Unrealized
Estimated
Amortized
Fair
Cost
Value
(Amounts in thousands)
January 31, 2004
Due in one year or less
$
19,024
$
19,013
Due after one year
5,602
5,585
$
24,626
$
24,598
F-32
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
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. As of the end of fiscal 2003, the
Company held a portfolio of $24.6 million in fixed income
marketable securities for which, due to the conservative nature
of its investments and relatively short duration did not result
in any impairment charge.
Realized Gain on Marketable Securities and
    Write-off of Investments, Net
In fiscal 2002, realized gains from sales of
marketable securities were approximately $97,000. Net realized
gains on the sales of marketable securities were approximately
$66,000 in fiscal 2003. In addition, the Company wrote off
$313,000 of minority investments in private companies during the
fourth quarter of fiscal 2003, since these private companies
either declared bankruptcy or ceased operations.
7.     Property and
Equipment
At January 31, 2003 and 2004, property and
equipment, net, consists of the following:
2003
2004
(Amounts in thousands)
Computer equipment under capitalized leases
$
676
$
318
Computer equipment
10,975
14,891
Machinery and equipment
6,397
8,665
Office furniture and fixtures
1,286
3,964
Leasehold improvements
1,754
10,123
Building
—
6,159
Land
—
500
21,088
44,620
Less: accumulated depreciation and amortization
(11,007
)
(17,386
)
$
10,081
$
27,234
Due to declines in catalog response rates, the
Company performed recoverability analysis of long-lived assets
in the direct marketing segment during the fourth quarter of
fiscal 2003. The recoverability of long-lived assets were
measured by comparing the carrying amount of a group of assets
to estimated undiscounted future cash flows expected to be
generated by that group of assets. Since the carrying amounts of
certain groups of assets exceeded their estimated future cash
flows, an impairment charge of $1.3 million was recognized
in the direct marketing segment. Alloy determined that the
carrying amounts of the non-competition agreement of $144,000
related to Old Glory, the website of $31,000 related to Old
Glory and the non-competition agreement of $23,000 related to
Girlfriends LA were impaired as the Company plans to discontinue
marketing its Old Glory and Girlfriends LA brands. Other assets
of these businesses, namely mailing lists, were not deemed
impaired as they are and can be used by other parts of the
direct marketing segment. In addition, the future cash flows
related to Dan's Comp could not fully support the carrying
amount of Dan's Comp's long-lived assets. As a result,
an impairment charge related to the non-competition agreement of
$209,000, property and equipment of $159,000 and mailing list of
$749,000 was recorded.
Depreciation and amortization expense related to
property and equipment (including capitalized leases) was
approximately $2.6 million, $4.2 million, and
$6.7 million for fiscal 2001, 2002, and 2003 respectively.
F-33
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
8.     Current
Liabilities
Mortgage Note Payable
dELiA*s was subject to certain covenants under a
mortgage loan agreement relating to dELiA*s' fiscal 1999
purchase of a distribution facility in Hanover, Pennsylvania,
including a covenant to maintain a fixed charge coverage ratio.
As a result of its financial performance, the Company was in
default of the fixed charge coverage ratio. The default has been
waived for the duration of the loan. On April 19, 2004,
dELiA*s entered into a Mortgage Note Modification Agreement
extending the term for five years with a fifteen-year
amortization schedule. The modified loan bears interest at LIBOR
plus 225 basis points. The modified loan is guaranteed by
Alloy and Alloy is subject to a quarterly financial covenant to
maintain a funds flow coverage ratio with which Alloy is not
currently in compliance. As a result of this default, the
$2.9 million January 31, 2004 outstanding principal
balance related to dELiA*s mortgage loan agreement is classified
as a current liability on the accompanying consolidated balance
sheets. The mortgage loan is secured by the building and related
property.
Accrued Expenses and Other Current
    Liabilities
As of January 31, 2003 and 2004, accrued
expenses and other current liabilities consist of the following:
2003
2004
(Amounts in
thousands)
Accrued acquisition costs
$
12,998
$
3,417
Accrued sales tax
43
4,306
Credits due to customers
—
5,754
Current deferred tax liability
5,318
—
Other
9,320
23,364
$
27,679
$
36,841
9.     Credit
Agreements
In October 2000, Alloy entered into a credit
agreement (the "RBC Credit Agreement") with Royal Bank
of Canada, Grand Cayman (North America No. 1), (the
"Lender"). The RBC Credit Agreement was for a duration
of three years from inception, expired October 19, 2003,
and called for the Lender to make available to Alloy revolving
credit loans and letters of credit in the aggregate principal
amount not to exceed $15.1 million the proceeds of which
would be used to finance the working capital requirements of
Alloy and its subsidiaries in the ordinary course of business
and for other general corporate purposes. This facility was
originally collateralized by marketable securities and related
derivative put options. As further discussed in Note 2, as
a result of the settlement of the put options and sale of the
underlying securities, the facility limit was reduced from
$15.1 million to $500,000. There were no amounts
outstanding at January 31, 2002 or 2003 under the RBC
Credit Agreement.
dELiA*s has a credit agreement with Wells Fargo
Retail Finance LLC (the "Wells Fargo Credit
Agreement"). The Wells Fargo Credit Agreement consists of a
revolving line of credit that permits dELiA*s to borrow up to
$20 million. Until October 29, 2004, dELiA*s retains
the right to increase the limit to $25 million at its
option. The credit line is secured by dELiA*s' assets and
borrowing availability fluctuates depending on dELiA*s'
levels of inventory and certain receivables. The Wells Fargo
Credit Agreement contains certain covenants and default
provisions, including a limitation on dELiA*s' capital
expenditures. At dELiA*s' option, borrowings under this
facility bear interest at Wells Fargo Bank's prime rate
plus 25 basis points or at LIBOR plus 250 basis
points, but at no time will the rate be less than 4.25%. A fee
of 0.375% per year is assessed monthly on the unused
portion of the line of credit as defined in the agreement. The
facility matures in April
F-34
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
2006. The credit facility is considered a current
liability because the lender has access to dELiA*s lockbox
facility and the agreement contains a subjective acceleration
clause. In addition, the Wells Fargo Credit Agreement contains a
change of control event, which was triggered when Alloy
purchased dELiA*s and allows the lender to call the loan at any
time. The lender has agreed to waive any default caused in
connection with Alloy's acquisition of dELiA*s. As of
January 31, 2004, there was a zero balance on the loan, the
outstanding documentary letters of credit were $29,000, the
standby letters were $2.9 million, and unused available
credit was $5.4 million.
Letters of Credit
As of January 31, 2004, Alloy had $543,000
in a standby letter of credit with a bank for the purpose of
securing a lease transaction relating to computer equipment. The
letter of credit is fully secured by cash on deposit at the bank
as of January 31, 2004 and matures in fiscal 2007. In
addition, Alloy had a $682,000 guidance line for standby and
commercial letters of credit, of which $118,000 was outstanding
as of January 31, 2004 for the purpose of securing an
operating lease that Alloy maintains.
10.
Long-Term Debt
Issuance of Convertible Debt
On July 23, 2003, Alloy issued and sold
$65.0 million aggregate principal amount of 20-Year
Convertible Senior Debentures due August 1, 2023 (the
"Debentures") in the 144A private placement market.
Lehman Brothers, Inc., CIBC World Market Corp., J.P. Morgan
Securities Inc., and S.G. Cowen Securities Corporation were the
initial purchasers (the "Initial Purchasers") of the
Debentures. The Debentures have an annual coupon rate of 5.375%,
payable in cash semi-annually. The Debentures are convertible at
any time prior to maturity, unless previously redeemed, at the
option of the holders into shares of Alloy's common stock
at a conversion price of approximately $8.375 per share,
subject to certain adjustments. The calculation of diluted loss
per share for fiscal 2003 excluded the conversion of these
securities as to include them in the calculation would be
anti-dilutive. The Debentures are Alloy's general unsecured
obligations and will be equal in right of payment to its
existing and future senior unsecured indebtedness; and are
senior in right of payment to all of its future subordinated
debt. Alloy may not redeem the Debentures until August 1,
2008. On August 20, 2003, Alloy issued and sold an
additional $4.3 million aggregate principal amount of the
Debentures to the Initial Purchasers pursuant to the exercise of
an over-allotment option granted to the Initial Purchasers in
the original purchase agreement. Alloy used a significant
portion of the net proceeds from this offering for the
acquisition of dELiA*s and intends to use the remaining portion
for future acquisitions, working capital, capital expenditures
and general corporate purposes.
On February 17, 2004, Alloy approved the
repurchase of up to $5.0 million aggregate principal amount
of the Debentures. As of May 26, 2004, none of the
Debentures have been repurchased.
The fair value of Alloy's Debentures is
estimated based on quoted market prices. As of January 31,
2004, the fair value of the Debentures was $66.5 million.
Long-term debt consists of the following:
January 31,
2003
2004
Amounts in
thousands
5.375% Convertible Debentures due
    August 1, 2023, with interest payable semi-annually on
    February 1 and August 1
$
—
$
69,300
Capital leases and notes payable
93
307
Other long-term liabilities
—
436
$
93
$
70,043
F-35
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
11.     Series A
and Series B Redeemable Convertible Preferred
Stock
On February 16, 2001, the Board of Directors
of Alloy authorized the designation of a series of Alloy's
$0.01 par value preferred stock consisting of
1,850,000 shares of the authorized unissued preferred stock
as a Series A Convertible Preferred Stock (the
"Series A Preferred Stock"). The Series A
Preferred Stock had a par value of $0.01 per share with a
liquidation preference of $9.50 per share. The
Series A Preferred Stock paid an annual dividend of 3%,
payable in additional shares of Series A Preferred Stock.
In addition, the Series A Preferred Stock was mandatorily
redeemable on February 16, 2006 at a price of
$9.50 per share, plus accrued and unpaid cash dividends
thereon. The Series A Preferred Stock was convertible at
the holder's option into common stock of Alloy as is
determined by dividing $9.50 by the initial conversion price of
$11.40 and multiplying by each share of Series A Preferred
Stock to be converted. The initial conversion price is subject
to adjustment for stock splits, stock dividends and combinations
of common stock and other events as specified in the related
Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock of Alloy. At any time
after February 15, 2003, if the reported closing sales
price of Alloy's common stock exceeds $25.00 per share
for a period of ten consecutive trading days, Alloy has the
option to require the holders of all, but not less than all,
shares of the Series A Preferred Stock to convert their
shares into shares of Alloy common stock.
Also, on February 16, 2001, Alloy received
an investment of $10 million from St. Paul Venture Capital
VI, LLC ("SPVC VI") in exchange for
1,052,632 shares of Alloy's Series A Preferred
Stock. In addition, SPVC VI received a warrant to
purchase 307,018 shares of Alloy common stock at an
exercise price of $12.83 per share. The fair value of the
warrant issued in connection with the Series A Preferred
Stock was estimated as $1.5 million using the Black-Scholes
option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 75%, risk-free interest rate of 5.50%
and expected life of two years. Based upon the terms of this
transaction, there was a beneficial conversion feature
recognized as of the date of the transaction in the amount of
approximately $2.8 million, which reduced earnings
attributable to common stockholders in the year ended
January 31, 2002. The beneficial conversion feature was
recorded as a direct charge against accumulated deficit, with a
corresponding increase in additional paid-in capital. As a
result of warrants issued and the related expenses of the
transaction, there was a discount of $1.5 million upon
issuance of the Series A Preferred Stock, which was being
accreted over the five-year period prior to mandatory redemption
and reflected as a charge against additional paid-in capital and
a corresponding increase to the carrying value of the
Series A Preferred Stock. In addition, the accrued
dividends on the Series A Preferred Stock were also charged
to additional paid-in capital, with a corresponding increase in
the carrying value of the Series A Preferred Stock. On
October 25, 2001, SPVC VI converted all
1,052,632 shares of Series A Preferred Stock into
877,193 shares of Alloy common stock. At that time, the
remaining unamortized discount of $1.3 million was charged
to additional paid-in capital, with a corresponding increase to
Series A Preferred Stock and the then carrying value of
$8.5 million was converted into common stock and additional
paid-in capital. The additional accretion recorded upon
conversion has been reflected as a reduction of earnings
attributable to common stockholders.
On June 20, 2001, the Board of Directors of
Alloy authorized the designation of a series of Alloy's
$.01 par value preferred stock consisting of
3,000 shares of the authorized unissued preferred stock as
a Series B Convertible Preferred Stock (the
"Series B Preferred Stock"). The Series B
Preferred Stock has a par value of $.01 per share with a
liquidation preference of $10,000 per share. The
Series B Preferred Stock pays an annual dividend of 5.5%,
payable in either additional shares of Series B Preferred
Stock or cash, at Alloy's option. In addition, the
Series B Preferred Stock is mandatorily redeemable on
June 19, 2005 at a price of $10,000 per share, plus
accrued and unpaid cash dividends thereon. The Series B
Preferred Stock is convertible at the holder's option into
common stock of Alloy as is determined by dividing $10,000 by
the initial conversion price of $11.70 and multiplying by each
share of Series B Preferred Stock to be converted. The
initial conversion price is subject to adjustment for stock
splits, stock dividends and combinations of common stock and
other events as specified in the related Certificate of
Designation, Preferences and Rights of Series B Convertible
Preferred Stock of Alloy. At any time after June 20, 2002,
if the reported closing sales price of Alloy's common stock
exceeds $20.48 per
F-36
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
share for a period of twenty consecutive trading
days, Alloy has the option to require the holders of all, but
not less than all, shares of the Series B Preferred Stock
to convert their shares into shares of Alloy common stock.
Also, on June 20, 2001, Alloy received an
investment of $18.1 million from various investors in
exchange for 1,815 shares of Alloy's Series B
Preferred Stock, which were immediately convertible into
1,551,282 shares of Alloy common stock. In addition, the
Series B investors received warrants to purchase a total of
502,492 shares of Alloy common stock at an exercise price
of $12.46 per share. The fair value of the warrants issued
in connection with the Series B Preferred Stock was
estimated as $2.4 million using the Black-Scholes
option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 75%, risk-free interest rate of 5.50%
and expected life of two years. Based upon the terms of this
transaction, there was a beneficial conversion feature reflected
as of the date of the transaction in the amount of approximately
$4.0 million, which reduced earnings attributable to common
stockholders in the year ended January 31, 2002. Similar to
the accounting treatment for the Series A Preferred Stock,
the beneficial conversion feature was recorded as a direct
charge against accumulated deficit, with a corresponding
increase in additional paid-in capital. As a result of the
warrants issued and the related expenses of the transaction,
there was a discount of $3.9 million upon issuance of the
Series B Preferred Stock, which is being accreted over the
four-year period prior to mandatory redemption and reflected as
a charge against additional paid-in capital and a corresponding
increase to the carrying value of the Series B Preferred
Stock.
In fiscal 2001, an investor converted
50 shares of Series B Preferred Stock into
44,032 shares of Alloy common stock. The impact upon
conversion was the recognition of additional accretion of $92,
which has been reflected as a reduction of earnings attributable
to common stockholders. In fiscal 2002, investors converted
152 shares of Series B Preferred Stock into
136,469 shares of Alloy common stock. The impact upon
conversion was the recognition of additional accretion of
$235,000, which has been reflected as a reduction of earnings
attributable to common stockholders. In fiscal 2003, investors
converted 273 shares of Series B Preferred Stock into
261,505 shares of Alloy common stock. The impact upon
conversion was the recognition of additional accretion of
$255,000, which has been reflected as a reduction of earnings
attributable to common stockholders.
12.     Common Stock
Transactions
On November 1, 2001, Alloy entered into
definitive purchase agreements to sell 2,575,000 shares of
newly issued common stock, $.01 par value, in a private
placement to both new institutional investors and existing
stockholders for an aggregate purchase price of
$32.2 million. Net proceeds from this private placement of
$30.0 million were used for acquisitions or general
corporate purposes.
On January 25, 2002, Alloy entered into a
definitive purchase agreement to sell 1,367,366 shares of
newly issued common stock, $.01 par value, and warrants to
purchase a total of 888,788 shares of Alloy's common
stock at an exercise price of $21.94 per share in a private
placement to an investor for an aggregate purchase price of
$30.0 million. In February 2002, pursuant to the warrant
agreement and as a result of the Company's follow-on
offering, the warrants increased to 915,555 shares and the
exercise price decreased to $21.30 per share. In July and
August 2003, pursuant to the warrant agreement and as a result
of the Company's Debenture offering, the number of shares
for which warrants are exercisable increased to
1,019,291 shares and the exercise price decreased to
$19.13 per share. Net proceeds from this private placement
of approximately $28.0 million were used for acquisitions
and general corporate purposes. The fair value of the warrants
issued in connection with this financing was estimated as
$8.2 million using the Black-Scholes option-pricing model
with the following assumptions: dividend yield of 0%, volatility
of 50%, risk-free interest rate of 5.29% and expected life of
five years. In connection with this transaction, Alloy and a
company in which the investor had a minority investment entered
into a one-year marketing services agreement in which Alloy has
provided an agreed-upon set of advertising and promotional
services in exchange for a $3.0 million fee.
F-37
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
On February 21, 2002, Alloy sold
4,000,000 shares of its newly issued common stock,
$.01 par value, in an underwritten public offering at a
price of $15.21 per share, for an aggregate purchase price
of $60.8 million. Net proceeds from this public offering of
$56.6 million were used for acquisitions and general
corporate purposes.
On January 29, 2003, the Company's
Board authorized a stock repurchase program for the repurchase
by Alloy of up to $10.0 million of its common stock from
time to time in the open market at prevailing market prices or
in privately negotiated transactions. Alloy has repurchased
600,000 shares for approximately $3.0 million under
this plan through January 31, 2004. All 600,000 shares
were repurchased during the first quarter of fiscal 2003.
13.     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.
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 percent (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.
14.     Stock-based
Compensation Plans
Stock options:
During fiscal 1997, Alloy's Board of
Directors adopted a Stock Option Plan (the "1997
Plan"). The 1997 Plan, as restated, authorizes the granting
of options, the exercise of which would allow up to an aggregate
of 4,000,000 shares of Alloy's common stock to be
acquired by the holders of the options. The number of shares
under the 1997 Plan authorized for the granting of options was
raised to 8,000,000 pursuant to a shareholder vote on
July 21, 2000 and further increased to
10,000,000 pursuant to a shareholder vote on July 24,
2003. The options can take the form of Incentive Stock Options
("ISOs") or Non-qualified Stock Options
("NQSOs"). Options may be granted to employees,
directors and consultants. ISOs and NQSOs are granted in terms
not to exceed ten years and become exercisable as set forth when
the option is granted. Options may be exercised in whole or in
part. Vesting terms of the options range from immediately
vesting to a ratable vesting period of nine years. The exercise
price of the Options must be at least equal to 100% of the fair
market price of Alloy common stock on the date of grant. In the
case of a plan participant who owns directly or by reason of the
applicable attribution rules in Section 424(d) of the
United States Internal Revenue Code of 1986, as amended, more
than 10% of the total combined voting power of all classes of
stock of Alloy, the exercise price shall not be less than 110%
of the fair market value on the date of grant. ISOs must be
exercised within five to ten years from the date of grant
depending on the participant's ownership in Alloy. The
exercise price of all NQSOs granted under the 1997 Plan shall be
determined by Alloy's Board of Directors at the time of
grant. During fiscal 2002, Alloy's Board of Directors
adopted amendments to the 1997 Plan to permit the grant of
shares of the Company's common stock on a tax-deferred
basis to eligible individuals, subject to the otherwise
applicable terms, conditions, requirements and other limitations
the Board of Directors shall deem appropriate within the limits
of its powers under the 1997 Plan. The 1997 Plan will terminate
on June 30, 2007.
F-38
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
During fiscal 2002, Alloy's Board of
Directors adopted a new Stock Option Plan (the "2002
Plan"), which permits the granting of options, the exercise
of which would allow up to an aggregate of 500,000 shares
of Alloy's common stock to be acquired by the holders of
the options. During fiscal 2003, Alloy's Board of Directors
authorized an Amendment to the 2002 Plan increasing from 500,000
to 2,000,000 the aggregate number of shares which may be issued
under such plan. The options can take the form of NQSOs. Options
may be granted to employees, directors and consultants. Options
may be granted in terms not to exceed ten years and become
exercisable as set forth when the option is granted. Options may
be exercised in whole or in part. Vesting terms of the options
range from immediate vesting to a ratable vesting period of nine
years. The exercise price of all options granted under the 2002
Plan shall be determined by Alloy's Board of Directors at
the time of grant. Subsequently during fiscal 2002, Alloy's
Board of Directors adopted amendments to the 2002 Plan to permit
the grant of shares of the Company's common stock on a
tax-deferred basis to eligible individuals, subject to the
otherwise applicable terms, conditions, requirements and other
limitations the Board of Directors shall deem appropriate within
the limits of its powers under the 2002 Plan. The 2002 Plan will
terminate on July 11, 2012.
Additionally, during fiscal 2003, Alloy, through
its acquisition of dELiA*s Corp., assumed the dELiA*s Inc.
Amended and Restated 1996 Stock Incentive Plan, dELiA*s Inc.
1998 Stock Incentive Plan and the iTurf Inc. Amended and
Restated 1999 Stock Incentive Plan. Upon consummation of the
acquisition, Alloy amended these plans to provide, among other
things, that the common stock of Alloy, not dELiA*s Corp., would
be issuable upon exercise of options granted under the plans.
Pursuant to NASDAQ Marketplace Rule 4350-5, Alloy may not
issue grants under these plans to any person who was employed by
Alloy at the time the acquisition of dELiA*s Corp. was
consummated. Alloy may, however, issue grants under these plans
to persons who were employed by dELiA*s Corp. before, or have or
will become employed by Alloy or any of its subsidiaries after,
the time Alloy's acquisition of dELiA*s Corp. was
consummated.
Alloy applies APB No. 25 in accounting for
options issued under the 1997 Plan, the 2002 Plan and the
assumed dELiA*s plans and, accordingly, recognizes compensation
expense for the difference between the fair value of the
underlying common stock and the grant price of the option at the
date of grant. Alloy applies SFAS No. 123 to issuances
of stock-based compensation to non-employees and, accordingly,
recognizes the fair value of the stock options and warrants
issued as compensation expense over the service period or
vesting period, whichever is shorter. Compensation expense
recognized for the issuance of stock options to non-employees
approximated $114,000, $0, and $0 for fiscal 2001, 2002, and
2003, respectively. The fair value assumptions used for awards
to non-employees are consistent with the assumptions listed for
the pro forma impact of awards to employees.
The following is a summary of Alloy's stock
option activity:
For the Years Ended January 31,
2002
2003
2004
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
Shares
Price
Shares
Price
Shares
Price
Outstanding, beginning of year
4,009,129
$
13.69
6,016,148
$
12.56
6,791,817
$
11.64
Options granted
4,253,100
11.90
1,697,150
9.19
2,012,089
5.26
Options exercised
(939,634
)
11.74
(190,846
)
8.16
(26,256
)
4.42
Options canceled or expired
(1,306,447
)
14.47
(730,635
)
14.44
(1,093,715
)
11.97
Outstanding, end of year
6,016,148
$
12.56
6,791,817
$
11.64
7,683,935
$
9.96
Exercisable, end of year
520,574
$
13.91
2,013,637
$
13.33
3,333,285
$
12.32
Weighted-average fair value of options granted
    during the year
$
7.62
N/A
$
6.20
N/A
$
3.41
N/A
F-39
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:
For the Years Ended January 31,
2002
2003
2004
Risk-free interest rates
4.43
%
3.62
%
2.97
%
Expected lives
5 years
5 years
5 years
Expected volatility
75
%
82
%
74
%
Expected dividend yields
—
—
—
Summarized information about Alloy's stock
options outstanding and exercisable at January 31, 2004 is
as follows:
Outstanding
Exercisable
Average
Average
Exercise Price
Exercise
Exercise
Range
Options
Average Life
Price
Options
Price
$0.60
5,348
5.0 Years
$
0.60
5,348
$
0.60
$2.64 – $2.79
2,656
9.2 Years
$
2.72
0
$
0
$4.07 – $6.09
1,842,679
9.3 Years
$
4.75
120,285
$
4.60
$6.19 – $9.23
2,178,399
7.7 Years
$
7.70
948,541
$
8.02
$9.29 – $13.80
2,230,675
7.6 Years
$
12.39
1,119,133
$
12.48
$13.95 – $20.90
1,391,178
6.7 Years
$
16.32
1,115,103
$
16.50
$21.06 – $23.20
33,000
6.9 Years
$
21.24
24,875
$
21.19
$0.60 – $23.20
7,683,935
7.9 Years
$
9.96
3,333,285
$
12.32
Warrants:
The following table summarizes all common stock
and preferred stock activity:
For the Years Ended January 31,
2002
2003
2004
Outstanding, beginning of year
473,180
1,690,635
1,813,559
Warrants issued
1,808,298
136,767
103,736
Warrants exercised
(590,843
)
(13,843
)
—
Outstanding, end of year
1,690,635
1,813,559
1,917,295
At January 31, 2004, the unexercised
warrants have a weighted average exercise price of
$16.19 per share and a weighted average remaining
contractual term of 5.19 years. As of January 31,
2004, all outstanding warrants are exercisable. The calculation
of diluted (loss) earnings per share for fiscal 2001, 2002 and
2003 excludes the warrants listed above because to include them
in the calculation would be antidilutive. Therefore the warrants
did not have an impact on the calculation of earnings
attributable to common stockholders per share.
Restricted Stock
In May 2003 Alloy's Board of Directors
authorized the issuance of 300,000 shares of Common Stock
as restricted stock under the 1997 Plan, which shares were
issued in March 2004. The shares issued pursuant to the 1997
Plan are subject to restrictions on transfer and certain other
conditions. During the restriction period, plan participants are
entitled to vote and receive dividends on such shares. Upon
issuance of the 300,000 shares pursuant to the 1997 Plan, a
deferred compensation expense equivalent to the market value of
the shares on the
F-40
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
date of grant was charged to stockholders'
equity and is being amortized over the approximate twenty-month
vesting period. The compensation expense amortized with respect
to the restricted shares during fiscal 2003 was approximately
$989,000. On January 31, 2004, a total of 150,000 of the
300,000 shares vested.
Employee Stock Purchase Plan
In April 1999, Alloy adopted the 1999 Employee
Stock Purchase Plan (the "Employee Stock Plan"). The
Employee Stock Plan allows eligible employees, as defined in the
Employee Stock Plan, to purchase Alloy's common stock
pursuant to section 423 of the Internal Revenue Code of
1986, as amended. A total of 500,000 shares of Alloy's
common stock have been made available for sale under the
Employee Stock Plan, subject to certain capitalization
adjustments specified in the plan document. The Employee Stock
Plan will terminate on April 16, 2009 unless terminated
sooner by the Board of Directors. The Employee Stock Plan allows
for purchases of common stock under a series of six-month
offering periods commencing February 1 and August 1 of
each year, the frequency of dates and duration of which may be
changed by the Board of Directors. Eligible employees can elect
to participate through payroll deductions between 1% and 10% of
compensation that will be credited to the participant's
account. The terms of the Employee Stock Plan provide for the
granting of an option on the first day of each six-month
offering period ("Offering Date") to each eligible
employee to purchase Alloy's common stock on the last day
of each six-month offering period ("Exercise Date") at
a price equal to the lower of 85% of the fair market value of a
share of Alloy's common stock at the Offering Date or 85%
of the fair market value of a share of Alloy's common stock
on the Exercise Date. These shares are considered
noncompensatory for the determination of compensation expense
under APB No. 25, but the difference between the fair value
of the amount of the benefit paid related to acquiring such
shares at a discount is included as compensation expense in the
pro forma disclosures required by SFAS No. 123 above.
The number of shares under the Employee Stock
Plan will be determined by dividing an eligible employee's
accumulated contributions prior to the Exercise Date and
retained in the participant's account as of the Exercise
Date by the lower of 85% of the fair market value of a share of
Alloy's common stock on the Offering Date, or 85% of the
fair market value of a share of Alloy's common stock on the
Exercise Date. Unless a participant withdraws from the Employee
Stock Plan, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the relative
six-month offering period.
Shares Reserved for Future
    Issuance:
Shares reserved for future issuance at
January 31, 2003 and 2004 are as follows:
For the Years Ended
January 31,
2003
2004
Preferred Stock
2,259,544
1,981,866
Stock Option Plans
6,969,812
17,675,031
Warrants
1,813,559
1,917,295
Employee Stock Plan
451,123
289,245
5.375% Senior Convertible Debentures
—
8,274,628
11,494,038
30,138,065
F-41
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
15.     Income
Taxes
The components of the benefit
(provision) for income taxes consist of the following
(amounts in thousands) for the years ended January 31:
2002
2003
2004
Current:
State
$
296
$
1,114
$
307
Federal
—
—
366
296
1,114
673
Deferred:
State
—
191
(286
)
Federal
—
(2,777
)
4,892
—
(2,586
)
4,606
Net Income Tax Expense/(Benefit)
$
296
$
(1,472
)
$
5,279
The difference between the total expected tax
expense (benefit) (using the statutory rates of 34%, 35% and
35%, respectively) and tax expense for fiscal 2001, 2002 and
2003 is accounted for as follows:
2001
2002
2003
Computed expected tax (benefit) expense
(34
)%
35
%
(35
)%
State taxes, net of federal benefit
—
7
%
—
Non-deductible expenses
34
%
1
%
1
%
Goodwill Impairment
—
—
29
%
Change in valuation allowance
2
%
(50
)%
13
%
Total expense (benefit)
2
%
(7
)%
8
%
F-42
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
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 at
January 31,:
2003
2004
(Amounts in
thousands)
Deferred tax assets:
Accruals and reserves
$
4,131
$
10,001
Deferred compensation
—
435
Property and equipment
583
3,096
Other
576
739
Net operating loss and capital loss carryforwards
10,087
28,437
Gross deferred tax assets
15,377
42,708
Valuation allowance
(2,755
)
(36,309
)
Total deferred tax assets
12,622
6,399
Deferred tax liabilities:
Goodwill
(875
)
(749
)
Identified intangible assets
(6,576
)
(4,308
)
Other
(565
)
(1,342
)
Total deferred tax liabilities
(8,016
)
(6,399
)
Net deferred tax assets
$
4,606
$
—
For federal income tax purposes, Alloy has unused
net operating loss ("NOL") carryforwards of
$59.1 million at January 31, 2004 expiring through
2023 and capital loss carryforwards of $3.5 million at
January 31, 2004 expiring from January 31, 2006
through January 31, 2008. 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. Based on the level of taxable
income for the year ended January 31, 2003 and projections
of future taxable income, results of the acquisitions and
building of economies of scale, management believed it was more
likely than not that Alloy would realize the benefits of the
deferred tax assets that were deductible during these periods,
net of the valuation allowance. Therefore, the Company recorded
a deferred tax benefit for a portion of the assets that had been
fully reserved. For the year ended January 31, 2004, due to
a number of factors, including the fiscal 2003 taxable loss and
the acquisition of dELiA*s, management lowered its projections
of future taxable income, particularly for the next
15 months. As a result of these lower projections of future
taxable income, management believes the future utilization of
the Company's deferred tax assets is no longer
more-likely-than-not. The Company has made the decision to fully
reserve the remaining net deferred tax asset by increasing the
valuation allowance via a $4.6 million income tax provision
during the year ended January 31, 2004.
The valuation allowance decreased by
$16.7 million and increased by $33.6 million during
fiscal years 2002 and 2003, respectively. If the entire deferred
tax assets were realized, $2.6 million would be allocated
to equity related to the tax effect of the employees' stock
option deductions. In addition, $22.4 million would be
allocated
F-43
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
to goodwill related to acquired deferred tax
assets. The remaining deferred tax asset would reduce the income
tax expense.
On the Company's consolidated balance sheet,
at January 31, 2003 and 2004, the current portion of the
deferred tax assets amounting to $7.0 million, and none,
respectively is included in other current assets. The current
portion of the deferred tax liability amounting to approximately
$5.3 million and none, respectively, is included in accrued
expenses and other current liabilities.
16.     Net (Loss)
Earnings Per Share
The following table sets forth the computation of
net (loss) earnings per share. Alloy has applied the provisions
of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" in the calculation below. Amounts
are in thousands, except share and per share data.
Year Ended January 31,
2002
2003
2004
NUMERATOR:
Net (loss) income
$
(15,600
)
$
23,295
$
(75,215
)
Charge for beneficial conversion of Series A
    and Series B Redeemable Convertible Preferred Stock
(6,745
)
—
—
Dividends and accretion on preferred stock
(3,013
)
(2,100
)
1,944
Net (loss) income attributable to common
    stockholders
$
(25,358
)
$
21,195
$
(77,159
)
DENOMINATOR:
Denominator for basic and diluted (loss) earnings
    attributable to common stockholders per share:
Weighted average basic common shares outstanding
24,967,678
38,436,256
41,175,046
Contingently issuable common stock pursuant to
    acquisitions
—
959,045
—
Options to purchase common stock
—
676,111
—
Weighted average diluted common shares outstanding
24,967,678
40,071,412
41,175,046
Basic (loss) earnings attributable to common
    stockholders per share
$
(1.02
)
$
0.55
$
(1.87
)
Diluted (loss) earnings attributable to common
    stockholders per share
$
(1.02
)
$
0.53
$
(1.87
)
For fiscal 2002, diluted earnings per common
share is based upon the weighted average number of common shares
outstanding during the period assuming the issuance of common
shares for all dilutive potential common shares outstanding.
F-44
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The calculation of diluted (loss) earnings per
share for fiscal 2001, 2002 and 2003 excludes the securities
listed below because to include them in the calculation would be
antidilutive. For purpose of this presentation, all securities
are assumed to be common stock equivalents and antidilutive:
January 31,
2002
2003
2004
Options to purchase common stock
6,016,148
6,115,706
7,326,014
Warrants to purchase common stock
1,690,635
1,813,559
1,873,452
Conversion of Series A and Series B
    Redeemable Convertible preferred stock
1,576,822
1,506,363
1,377,254
Contingently issuable common shares pursuant to
    acquisitions
1,234,032
—
—
Conversion of 5.375% Convertible Debentures
—
—
8,103,484
Restricted stock
—
—
300,000
Total
10,517,637
9,435,628
18,980,204
17.     Commitments
and Contingencies
Leases
Alloy leases dELiA*s retail stores, office space,
warehouse space and certain computer equipment under
noncancellable leases with various expiration dates through
2013. As of January 31, 2004, future net minimum lease
payments were as follows:
Capital
Operating
Sublease
Year Ending January 31,
Leases
Leases
Rent
(Amounts in thousands)
2005
$
257
$
13,879
$
(365
)
2006
39
12,874
(313
)
2007
28
11,852
(319
)
2008
20
10,061
(203
)
2009
3
9,503
(151
)
Thereafter
—
22,484
(191
)
Total minimum lease payments
$
347
$
80,653
$
(1,542
)
Imputed interest
19
Capital lease obligations
$
328
Some of dELiA*s retail store leases include
contingent rent clauses that will result in higher payments if
the store sales exceed expected levels. Some of Alloy's
operating leases also include renewal options and escalation
clauses with terms that are typical for the industry. In
addition, it is obligated to pay a proportionate share of
increases in real estate taxes and other occupancy costs for
space covered by its operating leases.
Rent expense was approximately $2.6 million,
$3.3 million, and $8.1 million for fiscal 2001, 2002,
and 2003, respectively, under noncancellable operating leases.
Ordering, Fulfillment and Customer
    Service
Alloy entered into a master services agreement
with NewRoads, Inc., ("New Roads"), a third party
service organization, whereby New Roads provides Alloy with
comprehensive call center and order fulfillment services
F-45
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
in support of the Alloy, CCS, GFLA and Old Glory
direct marketing operations. All aspects relating to fulfillment
of customer orders are handled by New Roads, including receipt
and processing of customer orders, shipment of merchandise to
customers and customer service. In consideration for performance
of the services provided by New Roads during the contract term,
Alloy paid New Roads an initial start-up fee and is charged a
fixed fee per order processed plus a pass-through of the
variable costs, primarily labor, involved in order processing.
During the third quarter of fiscal 2003, Alloy
terminated its agreement with New Roads following its strategic
decision to transfer substantially all of its fulfillment
activities for its Alloy and CCS direct marketing units from New
Roads, to its recently acquired distribution center in Hanover,
Pennsylvania and to discontinue its Old Glory and Girlfriends LA
brands during fiscal 2004.
Sales Tax
Alloy does not collect sales or other similar
taxes on shipments of goods into most states. However, various
states or foreign countries may seek to impose sales tax
obligations on such shipments. A number of proposals have been
made at the state and local levels that would impose additional
taxes on the sale of goods and services through the Internet. A
successful assertion by one or more states that Alloy should
have collected or be collecting sales taxes on the sale of
products could have a material effect on Alloy's operations.
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, 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 Alloy's common stock between May 14, 1999
and December 6, 2000 and alleges violations of
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933
(the "Securities Act") and Section 10(b) of the
Securities Exchange Act of 1934 (the "'34 Act")
and Rule 10b-5 promulgated thereunder. On or about
April 19, 2002, plaintiff filed an amended complaint
against Alloy, the individual defendants and the underwriters of
its initial public offering. The amended complaint asserts
violations of Section 10(b) of the '34 Act and mirrors
allegations asserted against scores of other issuers sued by
plaintiffs' counsel. Pursuant to an omnibus agreement
negotiated with representatives of the plaintiffs' counsel,
Messrs. Diamond and Johnson have been dismissed from the
litigation without prejudice. In accordance with the
Court's case management instructions, Alloy joined in a
global motion to dismiss the amended complaints, which were
filed by the issuers' liaison counsel. By opinion and order
dated February 19, 2003, the District Court denied in part
and granted in part the global motion to dismiss. With respect
to Alloy, the Court dismissed the Section 10(b) claim and
let the plaintiffs proceed on the Section 11 claim.
Accordingly, the remaining claim against Alloy will focus solely
on whether the registration statement filed in connection with
its initial public offering contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statement therein not
misleading. Although Alloy has not retained a damages expert at
this time, the dismissal of the Section 10(b) claim likely
will reduce the potential damages that plaintiffs can claim.
Management believes that the remaining allegations against us
are without merit. The Company has retained Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, PC in connection with this matter.
Alloy participated in the Court-ordered mediation with the other
issuer defendants, the issuers' insurers and plaintiffs to
explore whether a global resolution of the claims against the
issuers could be reached. To this end, a memorandum of
understanding setting forth the proposed terms of a settlement
was signed by counsel to several issuers, including Alloy's
counsel, which is not binding upon Alloy. In a press release
dated June 26, 2003, plaintiffs' counsel announced
that the memorandum of understanding had been signed, and that
the process of obtaining the approval of all parties to the
settlement was underway. Alloy is participating in that process.
Any definitive settlement, however, will require final approval
by the Court after notice to all class members and a fairness
hearing.
F-46
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
On or about March 8, 2003, several putative
class action complaints were filed in the United States District
Court for the Southern District of New York naming as defendants
Alloy, James K. Johnson, Jr., Matthew C. Diamond and Samuel
A. Gradess. The complaints purportedly were filed on behalf of
persons who purchased Alloy's common stock between
August 1, 2002 and January 23, 2003, and, among other
things, allege violations of Section 10(b) and
Section 20(a) of the '34 Act and Rule 10b-5
promulgated thereunder stemming from a series of allegedly false
and misleading statements made by Alloy to the market between
August 1, 2002 and January 23, 2003. At a conference
held on May 30, 2003, the Court consolidated the actions
described above. On August 5, 2003, Plaintiffs filed a
consolidated class action complaint (the "Consolidated
Complaint") naming the same defendants, which supersedes
the initial complaint. Relying in part on information allegedly
obtained from former employees, the Consolidated Complaint
alleges, among other things, misrepresentations of Alloy's
business and financial condition and the results of operations
during the period from March 16, 2001 through
January 23, 2003 (the "class period"), which
artificially inflated the price of its stock, including without
limitation, improper acceleration of revenue, misrepresentation
of expense treatment, failure to properly account for and
disclose consignment transactions, and improper deferral of
expense recognition. The Consolidated Complaint further alleges
that during the class period the individual defendants and the
Company sold stock and completed acquisitions using Alloy's
stock. Alloy and the individual defendants filed a joint answer
to the Consolidated Complaint on September 26, 2003. The
individual defendants have retained the law firm of Cahill,
Gordon & Reindel in connection with this matter. Alloy
has retained the law firm of Katten Muchin Zavis Rosenman in
connection with this matter. Management believes that the
allegations against the Company and Messrs. Diamond,
Gradess and Johnson are without merit and intends to vigorously
defend the action.
dELiA*s currently is party to a purported class
action litigation, which originally was filed in two separate
complaints in Federal District Court for the Southern District
of New York in 1999 against dELiA*s Inc. and certain of its
officers and directors. These complaints were consolidated. The
consolidated complaint alleges, among other things, that the
defendants violated Rule 10b-5 under the Securities
Exchange Act of 1934 by making material misstatements and by
failing to disclose certain allegedly material information
regarding trends in the business during part of 1998. The
parties have reached an agreement on a full settlement of the
action, which was approved by the court on April 21, 2004.
The entire settlement amount will be covered by dELiA*s
insurance carrier.
On or about February 1, 2002, a complaint
was filed in the Circuit Court of Cook County, Illinois naming
dELiA*s as a defendant. The complaint purportedly was filed on
behalf of the State of Illinois under the False Claims Act and
the Illinois Whistleblower Reward and Protection Act and seeks
unspecified damages and penalties for dELiA*s alleged failure to
collect and remit use tax on items sold by dELiA*s through its
catalogs and website to Illinois residents. On April 8,
2004, the complaint was served on dELiA*s by the Illinois
Attorney General's Office, which assumed prosecution of the
complaint from the original filer. dELiA*s has retained the law
firm of Katten Muchin Zavis Rosenman in connection with this
matter. Management believes the proceedings against dELiA*s are
without merit and intends to defend the action vigorously.
Alloy is also involved in additional legal
proceedings that have arisen in the ordinary course of business.
Alloy believes that other than those discussed above there is no
claim or litigation pending, the outcome of which could have a
material adverse effect on its financial condition or operating
results.
Guarantees
The Company has no significant guarantees.
18.     Restructuring
Charges
During fiscal 2002, the Company made the
strategic decision to outsource substantially all of its
fulfillment activities for its CCS unit to New Roads, Inc.
During the fourth quarter of fiscal 2002, the Company determined
that it would not be able to exit or sublease its existing
fulfillment facilities. In accordance with Emerging Issues
F-47
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
Task Force Issue No. 94-3 and SAB
No. 100, the Company recognized a restructuring charge of
approximately $2.6 million in the fourth quarter of fiscal
2002 in its direct marketing segment, representing the future
contractual lease payments and the write-off of related
leasehold improvements. The Company did not incur any
significant personnel termination obligations as a result of the
facility closure.
During the first quarter of fiscal 2003, the
Company made the strategic decision to outsource substantially
all of its fulfillment activities for its GFLA unit to New
Roads. The Company determined that it would not be able to
sublease its existing fulfillment facilities due to real estate
market conditions. In accordance with SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal
Activities'("Statement No. 146") and
SFAS No. 144, the Company recognized a charge of
approximately $380,000 in the first quarter of 2003 in its
direct marketing segment, representing the future contractual
lease payments, severance and personnel costs, and the write-off
of related leasehold improvements. Included in the charge, the
Company incurred severance and personnel costs of $44,000 as a
result of this facility closure.
During the third quarter of fiscal 2003, the
Company made the strategic decision to transfer substantially
all of its fulfillment activities for its Alloy and CCS direct
marketing units to its recently acquired distribution center in
Hanover, Pennsylvania. The Company notified New Roads that it
would be exiting the New Roads' facilities during the first
half of fiscal 2004 and as a result the Company was required to
pay New Roads an exit fee. In accordance with Statement
No. 146, the Company recognized a charge of approximately
$350,000 in the third quarter of fiscal 2003 in its direct
marketing segment, representing future contractual exit
payments, which were paid in the fourth quarter of fiscal 2003.
The Company does not expect to incur any significant personnel
termination obligations as a result of exiting the New Roads
contract.
The following tables summarize the Company's
restructuring activities (in thousands):
Asset
Contractual
Severance &
Type of Cost
Impairments
Obligations
Personnel Costs
Total
Restructuring Costs Fiscal 2002
$
820
$
1,751
$
—
$
2,571
Payments and Write-offs Fiscal 2002
(820
)
(155
)
—
(975
)
Balance at January 31, 2003
—
1,596
—
1,596
Restructuring Costs Fiscal 2003
31
655
44
730
Payments and Write-offs Fiscal 2003
(31
)
(1,185
)
(44
)
(1,260
)
Balance at January 31, 2004
$
—
$
1,066
$
—
$
1,066
A summary of the Company's restructuring
liability under contractual obligations related to a real estate
lease as of January 31, 2003 and January 31, 2004 is
as follows (in thousands):
January 31,
January 31,
2003
2004
CCS facility, San Luis Obispo, California
$
1,596
$
1,066
The Company anticipates that the remaining
restructuring accruals will be settled by January 31, 2006.
As of January 31, 2004, the restructuring accruals are
classified on the Company's consolidated balance sheets as
a current liability and a long-term liability of approximately
$630,000 and $436,000 respectively.
19.     Segment
Reporting
Alloy currently has three reportable segments:
direct marketing, retail stores, and sponsorship and other. The
merchandise segment and the sponsorship and other segment were
identified during 2002. As a result of the change in composition
of its reportable segments, Alloy reclassified information prior
to 2002 to conform to the new presentation. During September
2003, Alloy changed the name of its catalog and online commerce
business
F-48
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
from the merchandise segment to the direct
marketing segment and identified a third reportable
segment — retail stores. Alloy began operation of its
retail stores upon the acquisition of dELiA*s in September 2003.
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. The accounting policies of the segments are
the same as those described in Note 2. Reportable data for
Alloy's reportable segments were as follows as of and for
the years ended January 31, 2002, 2003, and 2004. (amounts
in thousands):
Total Assets
Capital Expenditures
2002
2003
2004
2002
2003
2004
Direct marketing
$
91,366
$
116,275
$
100,516
$
373
$
237
$
1,347
Retail stores
—
—
20,963
—
—
—
Sponsorship and other
138,331
248,313
261,024
112
1,952
832
Corporate
80,510
70,012
66,888
1,602
2,128
1,588
Total
$
310,207
$
434,600
$
449,391
$
2,087
$
4,317
$
3,767
Revenue
Depreciation and
Amortization
Direct marketing
$
124,052
$
167,572
$
156,821
$
11,849
$
2,969
$
3,450
Retail stores
—
—
30,103
—
—
1,355
Sponsorship and other
41,570
131,758
185,024
8,839
6,311
8,494
Corporate
—
—
—
365
539
1,321
Total
$
165,622
$
299,330
$
371,948
$
21,053
$
9,819
$
14,620
Operating (Loss) Income
2002
2003
2004
Direct marketing
$
(9,967
)
$
3,108
$
(63,296
)
Retail stores
—
—
(2,574
)
Sponsorship and other activities
4,922
29,210
25,258
Corporate
(11,852
)
(12,292
)
(27,074
)
Total
$
(16,897
)
$
20,026
$
(67,686
)
Interest income (expense), net
935
1,797
(2,003
)
Gain (loss) on sales of marketable securities and
    write-off of investments, net
658
—
(247
)
(Loss) income before income taxes
$
(15,304
)
$
21,823
$
(69,936
)
Included in Operating (Loss) Income are expenses
in fiscal 2002 of $2.6 million related to the direct
marketing segment for a restructuring charge to write-off
abandoned facility lease and equipment and a $1.0 million
amortization expense to the sponsorship segment representing the
reduction in net carrying amount of a marketing right that had
exceeded its discounted estimated future cash flows.
Included in Operating (Loss) Income in fiscal
2003 are expenses in the direct marketing segment of
$58.6 million representing the impairment of goodwill and
other indefinite-lived intangible assets, an asset impairment
charge of $1.3 million, and a $730,000 expense due to
restructuring charges representing future contractual lease
payments, exit costs, severance and personnel costs, and the
write-off of related leasehold improvements relating to the
closing of the Company's GFLA facility and exiting from the
New Roads
F-49
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
fulfillment facilities. Additionally, the
sponsorship and other segment includes a trademark impairment
charge of $2.0 million.
Cost of goods sold for the fiscal year 2003
included costs related to sponsorship and other revenues of
$2.4 million. Costs of goods sold for fiscal year 2002, had
no costs related to sponsorship and other revenues.
The carrying amount of goodwill by reportable
segment as of January 31, 2003 and January 31, 2004
was as follows (in thousands):
Goodwill
January 31,
January 31,
2003
2004
Sponsorship and other activities
$
191,602
$
209,839
Retail stores
—
—
Direct marketing
78,751
64,957
Total
$
270,353
$
274,796
20.     Subsequent
Events
On March 26, 2004, Alloy acquired all of the
issued and outstanding stock of InSite Advertising, Inc. InSite
is a national out-of-home media company targeting consumers
between the ages of 18-34. OnSite Promotions, a division of
InSite, is an event-marketing and promotions company that
creates customized programs for its clients. The InSite network
and the OnSite division further extend Alloy's reach to the
18-34 demographic through its promotional marketing arm, AMP
(Alloy Marketing and Promotions) and its media and marketing
division, 360 Youth. To complete the acquisition, Alloy paid
approximately $5.1 million in cash and issued shares of
common stock valued at approximately $2.9 million plus
additional consideration if certain financial performance
targets are met.
Alloy did not file its Annual Report on
Form 10-K for the fiscal year ended January 31, 2004
by the extended due date of April 30, 2004. As a result, on
May 4, 2004, Alloy received a letter from the Nasdaq staff
indicating that Alloy is not in compliance with the filing
requirements for continued listing on Nasdaq as set forth in
Nasdaq Marketplace Rule 4310(c)(14). This letter is
automatically sent out by the Nasdaq staff when a late filing
occurs. As stated in the Nasdaq letter, Alloy's common
stock is subject to delisting from the Nasdaq Stock Market
because of such late filing. Additionally, because of the late
filing, the fifth character "E" was appended to
Alloy's trading symbol at the opening of business on
May 6, 2004.
F-50
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
21.     Quarterly
Results (Unaudited)
The following table sets forth unaudited
financial data for each of Alloy's last eight fiscal
quarters. Amounts are in thousands, except share and per share
data:
Year Ended January 31, 2003
Year Ended January 31, 2004
First
Second
Third
Fourth
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Quarter
Quarter
Quarter
Quarter
Net direct marketing revenues
$
31,067
$
31,530
$
41,270
$
63,706
$
29,971
$
30,028
$
38,585
$
58,237
Retail store revenues
—
—
—
—
—
—
9,973
20,130
Sponsorship and other activities revenues
19,366
20,443
51,956
39,993
39,473
50,473
57,193
37,885
Total revenues
50,433
51,973
93,226
103,699
69,444
80,501
105,751
116,252
Cost of revenues
21,560
24,163
47,687
51,739
37,975
41,125
52,473
57,806
Gross profit
28,873
27,810
45,539
51,960
31,469
39,376
53,278
58,446
Operating expenses:
Selling and marketing
21,425
22,498
28,055
36,812
25,379
31,490
41,290
47,556
General and administrative
4,131
3,985
4,701
4,422
4,958
6,556
9,859
12,597
Amortization of goodwill and other intangible
    assets
535
1,189
1,180
2,651
1,785
1,896
2,083
2,123
Impairment of goodwill and other indefinite-lived
    intangible assets
—
—
—
—
—
—
—
60,638
Impairment of long-lived assets
—
—
—
—
—
—
—
1,315
Restructuring charges
—
—
—
2,571
380
—
350
—
Total operating expenses
26,091
27,672
33,936
46,456
32,502
39,942
53,582
124,229
Income (loss) from operations
2,782
138
11,603
5,504
(1,033
)
(566
)
(304
)
(65,783
)
Interest income (expense), net
535
586
330
248
287
(3
)
(970
)
(1,317
)
Realized (loss) on marketable securities and
    write-off of investments
—
11
—
86
—
—
—
(247
)
Income (loss) before income taxes
3,317
735
11,933
5,838
(746
)
(569
)
(1,274
)
(67,347
)
Provision for income taxes
247
197
336
(2,251
)
(358
)
(248
)
5,543
342
Net income (loss)
3,070
538
11,597
8,089
(388
)
(321
)
(6,817
)
(67,689
)
Preferred stock dividends and accretion of
    discount
558
479
605
458
453
702
393
396
Net income (loss) attributable to common
    stockholders
$
2,512
$
59
$
10,992
$
7,631
$
(841
)
$
(1,023
)
$
(7,210
)
$
(68,085
)
Basic net income (loss) attributable to common
    stockholders per share
$
0.07
$
0.00
$
0.28
$
0.19
$
(0.02
)
$
(0.02
)
$
(0.17
)
$
(1.65
)
Diluted net income (loss) attributable to common
    stockholders per share
$
0.06
$
0.00
$
0.28
$
0.18
$
(0.02
)
$
(0.02
)
$
(0.17
)
$
(1.65
)
F-51
SCHEDULE II
ALLOY, INC.
VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning of
Usage/
Balance at
Description
Period
Additions
Deductions
End of Period
(Amounts in thousands)
Allowance for doubtful accounts:
January 31, 2002
1,456
1,464
777
2,143
January 31, 2003
2,143
1,724
457
3,410
January 31, 2004
3,410
1,024
1,098
3,336
Reserve for sales returns and allowances:
January 31, 2002
766
13,553
13,366
953
January 31, 2003
953
22,034
21,716
1,271
January 31, 2004
1,271
23,189
22,981
1,479
Valuation allowance for deferred tax assets:
January 31, 2002
19,937
—
467
19,470
January 31, 2003
19,470
—
16,715
2,755
January 31, 2004
2,755
33,554
—
36,309
Unamortized discount on Series A and
    Series B Convertible Preferred Stock:
January 31, 2002
—
5,395
2,190
3,205
January 31, 2003
3,205
—
1,131
2,074
January 31, 2004
2,074
—
1,050
1,024
F-52
ALLOY, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited Financial Statements.
January 31,
April 30,
2004
2004
(Unaudited)
(Amounts in thousands,
except share and per
share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
27,273
$
19,597
Restricted cash
3,270
3,270
Marketable securities available-for-sale
19,014
15,684
Accounts receivable, net
31,492
34,907
Inventories
29,021
25,980
Prepaid catalog costs
2,028
1,420
Other current assets
3,813
6,158
TOTAL CURRENT ASSETS
115,911
107,016
Marketable securities available-for-sale
5,585
4,160
Property and equipment, net
27,234
27,176
Goodwill, net
274,796
280,721
Intangible and other assets, net
25,865
25,985
TOTAL ASSETS
$
449,391
$
445,058
LIABILITIES AND STOCKHOLDERS'
    EQUITY
CURRENT LIABILITIES:
Accounts payable
$
28,740
$
27,216
Deferred revenues
15,124
17,630
Mortgage note payable
2,914
2,891
Accrued expenses and other current liabilities
36,841
34,678
TOTAL CURRENT LIABILITIES
83,619
82,415
Long-term liabilities
743
3,119
Senior Convertible Debentures Due 2023
69,300
69,300
Series B Redeemable Convertible Preferred
    Stock, $10,000 per share liquidation preference;
    $.01 par value; 3,000 shares designated; mandatorily
    redeemable on June 19, 2005; 1,340 and 1,340 shares
    issued and outstanding, respectively
14,434
14,828
STOCKHOLDERS' EQUITY:
Preferred Stock; $.01 par value;
    10,000,000 shares authorized of which 1,850,000 shares
    designated as Series A Redeemable Convertible Preferred
    Stock and 3,000 shares designated as Series B
    Redeemable Convertible Preferred Stock authorized; 1,340 and
    1,340 shares issued and outstanding as Series B
    Redeemable Convertible Preferred Stock (above), respectively
—
—
Common Stock; $.01 par value;
    200,000,000 shares authorized; 42,701,767 and
    43,574,111 shares issued, respectively
427
436
Additional paid-in capital
412,594
415,621
Accumulated deficit
(127,170
)
(136,413
)
Deferred compensation
(1,411
)
(1,093
)
Accumulated other comprehensive loss
(30
)
(40
)
Less common stock held in treasury, at cost;
    608,275 and 608,275 shares, respectively
(3,115
)
(3,115
)
TOTAL STOCKHOLDERS' EQUITY
281,295
275,396
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
449,391
$
445,058
The accompanying Notes are an integral part of
these financial statements.
F-53
ALLOY, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Three Months Ended
April 30,
2003
2004
(Amounts in thousands, except
share and per share data)
(Unaudited)
Net revenues:
Direct marketing revenues
$
29,971
$
30,640
Retail stores revenues
—
13,641
Sponsorship and other revenues
39,473
43,566
Total net revenues
69,444
87,847
Cost of revenues:
Cost of goods sold
14,830
23,028
Cost of sponsorship and other revenues
23,145
23,599
Total cost of revenues
37,975
46,627
Gross profit
31,469
41,220
Operating expenses:
Selling and marketing
25,379
36,003
General and administrative
4,958
12,116
Amortization of intangible assets
1,785
1,522
Restructuring charge
380
126
Total operating expenses
32,502
49,767
Loss from operations
(1,033
)
(8,547
)
Interest income
291
120
Interest expense
(4
)
(1,194
)
Other income
—
388
Loss before income taxes
(746
)
(9,233
)
Provision for income tax (benefit) expense
(358
)
10
Net loss
$
(388
)
$
(9,243
)
Preferred stock dividends and accretion
453
394
Net loss attributable to common stockholders
$
(841
)
$
(9,637
)
Basic and diluted loss per share of common stock:
Basic loss attributable to common stockholders
    per share
$
(0.02
)
$
(0.23
)
Diluted loss attributable to common stockholders
    per share
$
(0.02
)
$
(0.23
)
Weighted average basic common shares outstanding
40,149,100
42,457,030
Weighted average diluted common shares outstanding
40,149,100
42,457,030
The accompanying Notes are an integral part of
these financial statements.
F-54
ALLOY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
For the Three
Months Ended
April 30,
2003
2004
(Amounts in
thousands)
(Unaudited)
Net loss
$
(388
)
$
(9,243
)
Other comprehensive loss net of tax:
Net unrealized loss on available-for-sale
    securities
(139
)
(10
)
Comprehensive loss
$
(527
)
$
(9,253
)
The accompanying Notes are an integral part of
these financial statements.
F-55
ALLOY, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Three Months
Ended April 30,
2003
2004
(Amounts in
thousands)
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(388
)
$
(9,243
)
Adjustments to reconcile net loss to net cash
    used in operating activities:
Depreciation and amortization
2,828
3,790
Deferred tax benefit
(322
)
—
Amortization of debt issuance costs
—
128
Compensation charge for restricted stock
—
351
Changes in operating assets and
    liabilities — net of effect of business acquisitions:
Accounts receivable, net
(5,426
)
(2,650
)
Inventories
1,097
3,041
Prepaid catalog costs
360
608
Other current assets
(1,926
)
(2,250
)
Other assets
(23
)
44
Accounts payable, accrued expenses and other
(6,652
)
(2,480
)
Net cash used in operating activities
(10,452
)
(8,661
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities
(7,130
)
(3,054
)
Proceeds from the sales and maturities of
    marketable securities
24,748
7,799
Capital expenditures
(935
)
(1,595
)
Sale and disposal of capital assets
18
2
Cash paid in connection with acquisitions of
    businesses, net of cash acquired
(208
)
(5,131
)
Purchase of mailing lists
—
(28
)
Net cash provided by (used in) investing
    activities
16,493
(2,007
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options and warrants and common stock
    purchases under the employee stock purchase plan
217
18
Repurchase of common stock
(2,984
)
—
Net borrowings under line of credit agreements
—
3,084
Payment of bank-loan
—
(23
)
Payments of capitalized lease obligations
(78
)
(87
)
Net cash (used in) provided by financing
    activities
(2,845
)
2,992
NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS
3,196
(7,676
)
CASH AND CASH EQUIVALENTS, beginning of period
35,187
27,273
CASH AND CASH EQUIVALENTS, end of period
$
38,383
$
19,597
Cash paid during the period for interest
$
4
$
1,990
Supplemental disclosure of non-cash investing and
    financing activity:
Issuance of common stock and warrants in
    connection with acquisitions
$
8,317
$
3,379
Preferred stock dividends and accretion
$
453
$
394
The accompanying Notes are an integral part of
these financial statements.
F-56
ALLOY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Three Months Ended April 30, 2004
Accumulated
Common Stock
Additional
Other
Treasury Stock
Paid-In
Accumulated
Deferred
Comprehensive
Shares
Amount
Capital
Deficit
Compensation
Loss
Shares
Amount
Total
(Unaudited)
(Amounts in thousands, except share data)
Balance, January 31, 2004
42,701,767
$
427
$
412,594
$
(127,170
)
$
(1,411
)
$
(30
)
$
(608,275
)
$
(3,115
)
$
281,295
Issuance of common stock for acquisitions of
    businesses
560,344
6
3,373
—
—
—
—
—
3,379
Issuance of common stock pursuant to the exercise
    of options
4,000
—
18
—
—
—
—
—
18
Net loss
—
—
—
(9,243
)
—
—
—
—
(9,243
)
Issuance of restricted stock
308,000
3
37
—
(40
)
—
—
—
—
Amortization of restricted stock
—
—
—
—
351
—
—
—
351
Adjustment of stock options for terminated
    employees
—
—
(7
)
—
7
—
—
—
—
Accretion of discount and dividends on
    Series B Convertible Preferred Stock
—
—
(394
)
—
—
—
—
—
(394
)
Unrealized loss on available-for-sale marketable
    securities
—
—
—
—
—
(10
)
—
—
(10
)
Balance, April 30, 2004
43,574,111
$
436
$
415,621
$
(136,413
)
$
(1,093
)
$
(40
)
(608,275
)
$
(3,115
)
$
275,396
F-57
ALLOY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Three Months Ended April 30, 2003
Accumulated
Common Stock
Additional
Other
Treasury Shares
Paid-In
Accumulated
Comprehensive
Shares
Amount
Capital
Deficit
Income (Loss)
Shares
Amount
Total
(Unaudited)
(Amounts in thousands, except share data)
Balance, January 31, 2003
40,082,024
$
401
$
396,963
$
(51,955
)
$
164
(8,275
)
$
(131
)
$
345,442
Issuance of common stock for acquisitions of
    businesses
1,545,947
15
8,302
—
—
—
—
8,317
Repurchase of common stock
—
—
—
—
—
(600,000
)
(2,984
)
(2,984
)
Cancellation of accrued issuance costs in
    connection with public stock offering
—
—
102
—
—
—
—
102
Issuance of common stock pursuant to the exercise
    of options and common stock purchases under the employee stock
    purchase plan
52,470
1
216
—
—
—
—
217
Net loss
—
—
—
(388
)
—
—
—
(388
)
Accretion of discount and dividends on
    Series B Convertible Preferred Stock
—
—
(453
)
—
—
—
—
(453
)
Unrealized loss on available-for-sale marketable
    securities
—
—
—
—
(139
)
—
—
(139
)
Balance, April 30, 2003
41,680,441
$
417
$
405,130
$
(52,343
)
$
25
(608,275
)
$
(3,115
)
$
350,114
The accompanying Notes are an integral part of
these financial statements.
F-58
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1.
Business and Financial Statement
    Presentation
Alloy, Inc. ("Alloy" or the
"Company") is a media, marketing services, direct
marketing and retail company targeting Generation Y, the
approximately 60 million boys and girls in the United
States between the ages of 10 and 24. Alloy's business
integrates direct mail catalogs, retail stores, print media,
display media boards, websites, on-campus marketing programs and
promotional events, and features a portfolio of brands that are
well known among Generation Y consumers and advertisers. Alloy
reaches a significant portion of Generation Y consumers through
its various media assets, marketing service programs, direct
marketing activities, and retail stores. As a result, Alloy is
able to offer advertisers targeted access to the youth market.
Alloy sells third-party branded and private label products in
key Generation Y spending categories, including apparel, action
sports equipment and accessories, directly to the youth market.
Additionally, Alloy's assets have enabled it to build a
comprehensive database that includes information about
approximately 27 million Generation Y consumers.
Alloy generates revenue from three principal
sources — direct marketing, retail stores, and
sponsorship and other activities. From its catalogs and
websites, Alloy sells branded products in key Generation Y
spending categories, including apparel, action sports equipment,
and accessories directly to the youth market. Alloy's
retail stores segment derives revenue primarily from the sale of
apparel, accessories and home furnishings to consumers. Alloy
generates sponsorship and other activities revenues largely from
traditional, blue chip advertisers that seek highly targeted,
measurable and effective marketing programs to reach Generation
Y. Advertisers can reach Generation Y through integrated
marketing programs that include its catalogs, books, websites,
and display media boards, as well as through promotional events,
product sampling, college and high school newspaper advertising,
customer acquisition programs and other marketing services that
Alloy provides.
The accompanying unaudited interim consolidated
financial statements have been prepared by Alloy. In the opinion
of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations, comprehensive losses and cash
flows at April 30, 2004 and for all periods presented have
been made. The results of operations for the periods ended
April 30, 2003 and April 30, 2004 are not necessarily
indicative of the operating results for a full fiscal year.
Certain information and footnote disclosures prepared in
accordance with generally accepted accounting principles
("GAAP") and normally included in the financial
statements have been condensed or omitted. Certain balances in
the prior year have been reclassified to conform to the
presentation adopted in the current year.
It is suggested that these financial statements
and accompanying notes (the "Notes") be read in
conjunction with the consolidated financial statements and
accompanying notes related to Alloy's fiscal year ended
January 31, 2004 ("fiscal 2003") included in this
prospectus.
2.
Stock-Based Employee Compensation
    Cost
The Company accounts for its stock option plans
in accordance with the provisions of Accounting Principles Board
Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the then current market
price of the underlying stock exceeded the exercise price. The
Company discloses the pro forma effect on net loss and loss per
share attributable to common stockholders as required by
SFAS No. 123, "Accounting for Stock-Based
Compensation," recognizing as expense over the vesting
period the fair value of all stock-based awards on the date of
grant.
Shares issued under the employee stock purchase
plan are considered noncompensatory for the determination of
compensation expense under APB No. 25, but the fair value
of the benefit related to acquiring such shares at a discount is
included as compensation expense in the pro forma disclosures
required by SFAS No. 123.
The following table reflects the effect on net
loss attributable to common stockholders and loss per share
attributable to common stockholders if the Company had applied
the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation. These pro forma effects
may not be representative of
F-59
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
future amounts since the estimated fair value of
stock options on the date of grant is amortized to expense over
the vesting period and additional options may be granted in
future years.
Three Months Ended
April 30,
2003
2004
(Unaudited)
(Amounts in thousands,
except per share data)
Net loss attributable to common
    stockholders — as reported:
$
(841
)
$
(9,637
)
Add: Total stock-based employee compensation
    costs included in reported net loss, net of taxes
—
351
Less: Total stock-based
employee compensation costs determined under fair
    value based method for all awards, net of taxes
(3,035
)
(2,518
)
Net loss attributable to common
    stockholders — pro forma:
$
(3,876
)
$
(11,804
)
Basic loss attributable to common stockholders
    per share:
As reported
$
(0.02
)
$
(0.23
)
Pro forma
$
(0.10
)
$
(0.28
)
Diluted loss attributable to common stockholders
    per share:
As reported
$
(0.02
)
$
(0.23
)
Pro forma
$
(0.10
)
$
(0.28
)
SFAS No. 148, "Accounting for
Stock-Based Compensation — Transition and Disclosure
an amendment of FASB Statement No. 123," which was
issued in December 2002, provides alternative methods of
transition for an entity that changes to the fair value based
method of accounting for stock-based compensation and requires
more prominent disclosure of the pro forma impact on earnings
per share. The disclosure portion of the statement was adopted
in 2002. On April 22, 2003, the FASB determined that fair
value of stock-based compensation should be recognized as a cost
in the financial statements. On March 31, 2004, the FASB
issued an exposure draft that provides for a comment period,
which ends June 30, 2004. The proposed statement would be
effective for awards that are granted, modified, or settled in
fiscal years beginning after December 15, 2004. The Company
has not yet determined the impact of this statement on its
consolidated financial position, results of operations or cash
flows.
3.
Restricted Cash
Restricted cash represents the cash that backs
our line of credit. Restricted cash totaled approximately
$3.3 million as of January 31, 2004 and April 30,
2004. Restricted cash primarily represents collateral for
standby letters of credit issued in connection with the
Company's merchandise sourcing activities. The restriction
will be removed after the letters of credit expire or are
cancelled.
4.
Unbilled Accounts Receivable
Unbilled accounts receivable are a normal part of
the Company's sponsorship business as some receivables are
normally invoiced in the month following the completion of the
earnings process.
At January 31, 2004 and April 30, 2004,
accounts receivable included approximately $4.3 million and
$9.2 million, respectively, of unbilled receivables. At
April 30, 2003, accounts receivable included approximately
$5.9 million of unbilled receivables.
F-60
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
5.
Net Loss Per Share
The following table sets forth the computation of
net loss per share. Alloy has applied the provisions of
SFAS No. 128, "Earnings Per Share," in the
calculations below. Amounts in thousands, except share and per
share data:
Three Months Ended
April 30,
2003
2004
(Unaudited)
Numerator:
Net loss
$
(388
)
$
(9,243
)
Dividend and accretion on preferred stock
453
394
Net loss attributable to common stockholders
$
(841
)
$
(9,637
)
Denominator:
Weighted average basic common shares outstanding
40,149,100
42,457,030
Weighted average diluted common shares outstanding
40,149,100
42,457,030
Basic loss attributable to common stockholders
    per share
$
(0.02
)
$
(0.23
)
Diluted loss attributable to common stockholders
    per share
$
(0.02
)
$
(0.23
)
The calculation of fully diluted loss per share
for the three months ended April 30, 2003 and 2004 excludes
the securities listed below because to include them in the
calculation would be antidilutive:
Three Months Ended
April 30,
2003
2004
(Unaudited)
Options to purchase common stock
6,907,111
7,927,196
Warrants to purchase common stock
1,813,540
1,917,295
Conversion of Series A and Series B
    Convertible Preferred Stock
1,544,730
1,357,329
Conversion of 5.375% Convertible Debentures
—
8,274,628
Restricted stock
—
308,000
10,265,381
19,784,448
6.
Goodwill and Intangible Assets
In June 2001, the FASB issued
SFAS No. 142, "Goodwill and Other Intangible
Assets." Under SFAS No. 142, goodwill and
intangible assets with indefinite lives that were acquired after
June 30, 2001 are no longer amortized but instead evaluated
for impairment at least annually. With respect to goodwill and
intangibles with indefinite lives that were acquired prior to
July 1, 2001, Alloy adopted the nonamortization provisions
of SFAS No. 142 as of February 1, 2002.
Alloy completed the required impairment testing
of goodwill and other indefinite-lived intangible assets for
fiscal 2003 and recognized a goodwill impairment charge of
$56.7 million in its direct marketing segment since the
carrying amount of the reporting unit's goodwill exceeded
the implied fair value of the reporting unit's goodwill.
The Company concluded that there was no impairment in its
sponsorship and other segment since the implied fair value of
the goodwill exceeded the carrying amount of the reporting
unit's goodwill. Also, during the fourth quarter of fiscal
2003, an impairment charge for trademarks of $1.9 million
and $2.0 million was recognized in the direct marketing
segment and the sponsorship and other segment, respectively. The
Company will perform its annual impairment testing for its
reporting units during the fourth quarter of fiscal 2004.
F-61
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The acquired intangible assets as of
January 31, 2004 and April 30, 2004 were as follows
(amounts in thousands):
January 31, 2004
April 30, 2004
Gross
Gross
Carrying
Accumulated
Carrying
Accumulated
Amount
Amortization
Amount
Amortization
(Unaudited)
Amortized intangible assets:
Mailing Lists
$
3,858
$
2,416
$
3,886
$
2,695
Non-competition Agreements
5,060
2,527
5,860
2,929
Websites
2,890
961
2,890
1,193
Client Relationships
7,405
2,441
8,505
3,049
Leasehold Interests
300
41
300
42
$
19,513
$
8,386
$
21,441
$
9,908
Nonamortized intangible assets:
Trademarks
$
9,535
$
—
$
9,535
$
—
The weighted average amortization period for
acquired intangible assets subject to amortization is
approximately three years. The estimated remaining amortization
expense for the fiscal year ending January 31, 2005
("fiscal 2004") is $4.7 million, and for each of
the next four fiscal years through the fiscal year ending
January 31, 2009 is $3.2 million, $1.4 million,
$721,000 and $558,000, respectively.
Alloy is continuing the review and determination
of the fair value of certain assets acquired and liabilities
assumed for acquisitions completed during the last nine months
of fiscal 2003 and the first three months of fiscal 2004.
Accordingly, the allocations of the purchase price are subject
to revision based on the final determination of appraised and
other fair values and the resolution of pre-acquisition
contingencies.
Goodwill
The changes in the carrying amount of goodwill
for the three months ended April 30, 2004 are as follows
(amounts in thousands):
Gross balance as of January 31, 2004
$
301,442
Accumulated goodwill amortization as of
    January 31, 2004
(26,646
)
Net balance as of January 31, 2004
274,796
Goodwill adjustments during the three months
    ended April 30, 2004
5,925
Net balance as of April 30, 2004
$
280,721
The goodwill associated with the acquisitions
during the prior twelve months is subject to revision based on
the final determination of appraised and other fair values along
with the resolution of pre-acquisition contingencies. Goodwill
adjustments during the first three months of fiscal 2004
primarily relate to an approximate $5.6 million increase in
goodwill for the acquisitions during the first quarter of fiscal
2004. Other goodwill adjustments during the first three months
of fiscal 2004 relate to changes to acquisition costs of
approximately $364,000.
7.
Recently Issued Accounting
    Pronouncements
In December 2003, the SEC released Staff
Accounting Bulletin No. 104 ("SAB No. 104"),
"Revenue Recognition", which supersedes SAB
No. 101, "Revenue Recognition in Financial
Statements." SAB No. 104
F-62
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
clarifies existing guidance regarding revenues
for contracts which contain multiple deliverables to make it
consistent with Emerging Issues Task Force No. 00-21
("EITF 00-21"), "Accounting for Revenue
Arrangements with Multiple Deliverables." The adoption of
SAB No. 104 did not have a material impact on the
Company's revenue recognition policies, nor its
consolidated results of operations or financial position.
In January 31, 2003 the FASB issued
FASB
Interpretation No. 46
— "Consolidation
of Variable Interest Entities" ("FIN 46").
FIN 46 requires the consolidation of entities that cannot
finance their activities without the support of other parties
and that lack certain characteristics of a controlling interest,
such as the ability to make decisions about the entity's
activities via voting or similar rights. An entity that
consolidates a variable interest entity is the primary
beneficiary of the entity's activities. FIN 46 applied
immediately to variable interest entities created after
January 31, 2003, and required application in the first
period ending after December 15, 2003 for entities in which
an enterprise holds a variable interest entity that it acquired
before February 1, 2003. The adoption of FIN 46 did
not have a material impact on the Company's consolidated
results of operations or financial position. In December of
2003, the FASB revised FIN 46 ("FIN 46R"),
which delayed the required implementation date for variable
interest entities until the end of the first reporting period
that ends after March 15, 2004. The adoption of
FIN 46R did not have a material impact on the
Company's consolidated results of operations or financial
position.
8.
Segment Reporting
Alloy has three reportable segments: direct
marketing, retail stores, and sponsorship and other. During
September 2003, Alloy changed the name of its catalog and online
commerce business from the merchandise segment to the direct
marketing segment and identified a third reportable
segment — retail stores. 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 (amounts in thousands):
Three Months Ended
April 30,
2003
2004
Net Revenues:
Direct marketing
$
29,971
$
30,640
Retail stores
—
13,641
Sponsorship and other
39,473
43,566
Total Net Revenues
$
69,444
$
87,847
Three Months Ended
April 30,
2003
2004
Operating (Loss) Income:
Direct marketing
$
(1,473
)
$
(1,400
)
Retail stores
—
(2,276
)
Sponsorship and other
5,446
4,131
Corporate
(5,006
)
(9,002
)
Total Operating Loss
(1,033
)
(8,547
)
Interest income (expense) and other income,
    net
287
(686
)
Loss before income taxes
$
(746
)
$
(9,233
)
F-63
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
Included in operating loss for the three months
ended April 30, 2003 are expenses of $380,000 in the direct
marketing segment due to restructuring charges representing
future contractual lease payments, exit costs, severance and
personnel costs, and the write-off of related leasehold
improvements related to the closing of the Company's
Girlfriends LA ("GFLA") facility. In conjunction with
the GFLA facility closure, the Company also wrote off
approximately $150,000 of inventory during the first quarter of
fiscal 2003. This charge is included in cost of goods sold as
part of the direct marketing segment for the three-months ended
April 30, 2003.
Operating loss for the three months ended
April 30, 2004 includes an approximate $126,000
restructuring charge in the sponsorship and other segment. The
restructuring charge is comprised of severance costs associated
with the relocation from California to New York of the
Company's Market Place Media ("MPM") business.
Cost of goods sold for the three-months ended
April 30, 2004 included costs related to sponsorship and
other revenues of $986,000. Costs of goods sold for the
three-months ended April 30, 2003, had no costs related to
sponsorship and other revenues.
Three Months
Ended April 30,
2003
2004
Depreciation and Amortization:
Direct marketing
$
797
$
1,123
Retail stores
—
792
Sponsorship and other
1,954
1,552
Corporate
77
323
Total Depreciation and Amortization
$
2,828
$
3,790
Three Months
Ended April 30,
2003
2004
Capital Expenditures:
Direct marketing
$
402
$
711
Retail stores
—
69
Sponsorship and other
183
516
Corporate
350
299
Total Capital Expenditures
$
935
$
1,595
January 31, 2004
April 30, 2004
Total Assets:
Direct marketing
$
100,516
$
97,198
Retail stores
20,963
20,520
Sponsorship and other
261,024
276,962
Corporate
66,888
50,378
Total Assets
$
449,391
$
445,058
F-64
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The carrying amount of goodwill by reportable
segment as of April 30, 2004 and January 31, 2004 was
as follows (amounts in thousands):
January 31, 2004
April 30, 2004
Direct marketing
$
64,957
$
64,957
Retail stores
—
—
Sponsorship and other
209,839
215,764
Total
$
274,796
$
280,721
9.
Restructuring Charges
During the fourth quarter of fiscal 2002, the
Company recognized a restructuring charge of $2.6 million
in its direct marketing segment related to its decision to
outsource its CCS unit's fulfillment activity to New Roads
Inc, a third party service provider ("New Roads"). In
the first quarter of 2003, the Company recognized a charge of
approximately $380,000 in its direct marketing segment related
to its decision to outsource its GFLA fulfillment activities to
New Roads. In the third quarter of fiscal 2003, the Company
recognized a charge of approximately $350,000 in its direct
marketing segment related to its decision to exit the New Roads
facility and to transfer its fulfillment activities for its
Alloy and CCS units to its recently acquired distribution center
in Hanover, Pennsylvania.
As part of the dELiA*s acquisition, Alloy assumed
a $6.5 million restructuring liability. Alloy was
contractually obligated to pay certain termination costs to
three executives of dELiA*s. Management has estimated
liabilities related to the net present value of these
termination costs to be approximately $2.7 million. In
addition, management estimated $3.8 million of store exit
and lease costs and severance related to the closing of up to 17
dELiA*s retail stores.
During the first quarter of fiscal 2004, the
Company made the decision to relocate the operations of its MPM
business from Santa Barbara, California to the
Company's principal office in New York, New York and
terminated several MPM employees. As a result, and in accordance
with SFAS 146 "Accounting for Costs Associated with
Exit or Disposal Activities" ("Statement
No. 146"), the Company recognized a restructuring
charge in the sponsorship and other segment of approximately
$126,000 in the first quarter of fiscal 2004. The $126,000
restructuring charge is comprised of severance costs. The MPM
business is expected to relocate to the New York office by the
end of the second quarter of fiscal 2004. Additional charges
representing additional severance costs, future contractual
lease payments and the write-off of related leasehold
improvements will be recognized during the second quarter of
fiscal 2004 when the MPM business is physically relocated from
Santa Barbara to New York.
F-65
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The following tables summarize the Company's
restructuring activities (in thousands):
Severance &
Asset
Contractual
Personnel
Type of cost
Impairments
Obligations
Costs
Total
Balance at January 31, 2003
$
—
$
1,596
$
—
$
1,596
Restructuring Costs Fiscal 2003
31
655
44
730
dELiA*s restructuring liability
—
6,311
212
6,523
Payments and Write-offs Fiscal 2003
(31
)
(2,519
)
(82
)
(2,632
)
Balance at January 31, 2004
—
6,043
174
6,217
Restructuring Costs Fiscal 2004
—
—
126
126
Payments Fiscal 2004
—
(597
)
(48
)
(645
)
Balance at April 30, 2004
$
—
$
5,446
$
252
$
5,698
A summary of the Company's restructuring
liability by location and/or business, as of January 31,
2004 and April 30, 2004 is as follows (in thousands):
January 31,
April 30,
2004
2004
CCS facility, San Luis Obispo, California
$
1,066
$
912
MPM facility, Santa Barbara, California
—
126
dELiA*s restructuring liability
5,151
4,660
Total
$
6,217
$
5,698
The Company anticipates that the remaining
restructuring accruals will be settled by January 31, 2008.
As of April 30, 2004, the restructuring accruals are
classified as a current liability and a long-term liability of
$4.0 million and $1.7 million, respectively.
10.
Common Stock
On January 29, 2003, Alloy adopted a stock
repurchase program authorizing the repurchase of up to
$10.0 million of its common stock from time to time in the
open market at prevailing market prices or in privately
negotiated transactions. Alloy has repurchased
600,000 shares for approximately $3.0 million under
this plan through April 30, 2004. All 600,000 shares
were repurchased during the first quarter of fiscal 2003.
11.
Restricted Stock Plan
In May 2003 and March 2004, the Company issued
300,000 and 8,000 shares of Common Stock, respectively, as
restricted stock under the Company's Amended and Restated
1997 Employee, Director and Consultant Stock Option and Stock
Incentive Plan (the "1997 Plan"). The shares issued
pursuant to the 1997 Plan are subject to restrictions on
transfer and certain other conditions. During the restriction
period, plan participants are entitled to vote and receive
dividends on such shares. Upon issuance of the
308,000 shares pursuant to the 1997 Plan, deferred
compensation expenses equivalent to the market value of the
shares on the respective dates of grant were charged to
stockholders' equity and are being amortized over the
approximate twenty-month to forty month vesting periods. The
compensation expense amortized with respect to the restricted
shares during the three months ended April 30, 2003 and
April 30, 2004 was $0 and $351,000, respectively.
F-66
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
12.
Recent Acquisitions
Insite Advertising, Inc.
On March 26, 2004, Alloy acquired all of the
issued and outstanding stock of Insite Advertising, Inc.
("Insite"). InSite is a national indoor media company
targeting consumers between the ages of 18-34. OnSite
Promotions, a division of InSite, is an event-marketing and
promotions company that creates customized programs for its
clients. The InSite network of out-of-home media assets and the
OnSite division further extend Alloy's reach to the 18-34
demographic through its promotional marketing arm, AMP (Alloy
Marketing and Promotions) and its media and marketing division,
360 Youth. To complete the acquisition, Alloy paid approximately
$5.1 million in cash and issued shares of common stock
valued at approximately $2.9 million, plus additional
future consideration if certain financial performance targets
are met. As of April 30, 2004, the total cash paid
including acquisition costs, net of cash acquired, approximated
$4.8 million. The total cost of this acquisition, net of
cash acquired and including acquisition costs, is estimated to
be $7.7 million. Alloy has recorded approximately
$5.4 million of goodwill representing the excess of
purchase price over the fair value of the net assets acquired.
In addition, Alloy has preliminarily identified specific
intangible assets consisting of customer relationships valued at
$1.1 million and non-competition agreements valued at
$800,000.
The operations of this acquisition have been
included in Alloy's financial statements since the date of
the acquisition. 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 allocations of the
purchase price are subject to revision based on the final
determination of appraised and other fair values and the
resolution of pre-acquisition contingencies.
13.
Convertible Senior Debentures
On July 23, 2003, Alloy issued and sold
$65.0 million aggregate principal amount of 20-Year
Convertible Senior Debentures due August 1, 2023 (the
"Debentures") in the 144A private placement market.
Lehman Brothers, Inc., CIBC World Market Corp., J.P. Morgan
Securities Inc., and S.G. Cowen Securities Corporation were the
initial purchasers (the "Initial Purchasers") of the
Debentures. The Debentures have an annual coupon rate of 5.375%,
payable in cash semi-annually. The Debentures are convertible
prior to maturity under certain circumstances, unless previously
redeemed, at the option of the holders into shares of
Alloy's common stock at a conversion price of approximately
$8.375 per share, subject to certain adjustments. The
calculation of diluted loss per share for fiscal 2003 excluded
the conversion of these securities as to include them in the
calculation would be anti-dilutive. The Debentures are
Alloy's general unsecured obligations and will be equal in
right of payment to its existing and future senior unsecured
indebtedness; and are senior in right of payment to all of its
future subordinated debt. Alloy may not redeem the Debentures
until August 1, 2008. On August 20, 2003, Alloy issued
and sold an additional $4.3 million aggregate principal
amount of the Debentures to the Initial Purchasers pursuant to
the exercise of an over-allotment option granted to the Initial
Purchasers in the original purchase agreement. Alloy used a
significant portion of the net proceeds from this offering for
the acquisition of dELiA*s and intends to use the remaining
portion for future acquisitions, working capital, capital
expenditures and general corporate purposes.
On February 17, 2004, Alloy approved the
repurchase of up to $5.0 million aggregate principal amount
of the Debentures. As of June 8, 2004, none of the
Debentures have been repurchased.
14.
Mortgage Note Payable
dELiA*s was subject to certain covenants under a
mortgage loan agreement relating to dELiA*s' fiscal 1999
purchase of a distribution facility in Hanover, Pennsylvania,
including a covenant to maintain a fixed charge coverage ratio
at the time Alloy acquired dELiA*s. As a result of its financial
performance, dELiA*s was in default of the fixed charge coverage
ratio. The default has been waived for the duration of the loan.
On April 19,
F-67
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
2004, dELiA*s entered into a Mortgage
Note Modification Agreement extending the term for five
years with a fifteen-year amortization schedule. The modified
loan bears interest at LIBOR plus 225 basis points. Alloy
guaranteed the modified loan and is subject to a quarterly
financial covenant to maintain a funds flow coverage ratio with
which Alloy is not currently in compliance. As a result of this
default, the $2.9 million outstanding principal balance as
of April 30, 2004 relating to dELiA*s mortgage loan
agreement is classified as a current liability on the
accompanying consolidated balance sheets. The mortgage loan is
secured by the building and related property.
15.
Credit Facility
dELiA*s has a credit agreement with Wells Fargo
Retail Finance LLC (the "Wells Fargo Credit
Agreement"). The Wells Fargo Credit Agreement consists of a
revolving line of credit that permits dELiA*s to borrow up to
$20 million. Until October 31, 2004, dELiA*s retains
the right to request an increase of the limit to
$25 million which the lender has the right to approve at
its sole discretion. The credit line is secured by dELiA*s'
assets and borrowing availability fluctuates depending on
dELiA*s' levels of inventory and certain receivables. The
Wells Fargo Credit Agreement contains certain covenants and
default provisions, including a limitation on dELiA*s'
capital expenditures. At dELiA*s' option, borrowings under
this facility bear interest at Wells Fargo Bank's prime
rate plus 25 basis points or at LIBOR plus 250 basis
points, but at no time will the rate be less than 4.25%. A fee
of 0.375% per year is assessed monthly on the unused
portion of the line of credit as defined in the agreement. The
facility matures in April 2006. The credit facility is
considered a current liability because the lender has access to
dELiA*s lockbox facility and the agreement contains a subjective
acceleration clause. In addition, the Wells Fargo Credit
Agreement contains a change of control event, which was
triggered when Alloy purchased dELiA*s and allowed the lender to
call the loan at any time. The lender has agreed to waive any
default caused in connection with Alloy's acquisition of
dELiA*s. As of April 30, 2004, there was a
$3.1 million credit facility balance, there were no
outstanding documentary letters of credit, the standby letters
of credit were $2.9 million, and unused available credit
was $945,000.
16.
Subsequent Events
Change of Independent Registered Public
    Accounting Firm
On May 28, 2004, the Audit Committee of our
Board of Directors (the "Board") dismissed KPMG LLP
("KPMG") as our independent auditors effective
immediately. The Audit Committee made the decision to engage BDO
Seidman, LLP ("BDO") as our independent auditors for
the fiscal year ending January 31, 2005, effective as of
May 28, 2004.
During our two most recent fiscal years ended
January 31, 2003 and January 31, 2004, and through
May 28, 2004, there were no "reportable events"
as listed in Item 304(a)(1)(v)(A)-(D) of
Regulation S-K adopted by the Securities and Exchange
Commission (the "Commission"), except that, in
performing its audit of our Consolidated Financial Statements
for our fiscal year ended January 31, 2004, KPMG noted two
matters involving our internal controls that it considered to be
reportable conditions and/or material weaknesses under the
standards established by the American Institute of Certified
Public Accountants. A reportable condition, which may or may not
be determined to be a material weakness, involves matters
relating to significant deficiencies in the design or operation
of internal controls that, in KPMG's judgment, could
adversely affect our ability to record, process, summarize and
report financial data consistent with the assertions of
management on the financial statements. The first reportable
condition identified by KPMG related to the absence of
appropriate reviews and approvals of transactions, accounting
entries and systems output at our dELiA*s subsidiary. According
to KPMG, numerous adjusting entries came about as a result of
its audit procedures at dELiA*s that indicated a lack of timely
and appropriate management review during the closing process.
This reportable condition was not considered to be a material
weakness.
F-68
ALLOY, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS —  (Continued)
The second identified reportable condition was
considered a material weakness and concerned the ability of
accounting personnel to properly apply all relevant accounting
pronouncements related to goodwill, intangible assets and other
long-lived assets. Specifically, KPMG indicated that when we
applied the provisions of FASB No. 142 relating to the
annual assessment of goodwill and other indefinite-lived
intangible assets carrying value, we incorrectly applied the
provisions of SFAS No. 142 needed to calculate the
impairment amounts, and failed to test separately the carrying
values of our other indefinite-lived intangible assets. KPMG
also indicated that we incorrectly applied the provisions of
SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," in calculating impairment
amounts of other long-lived assets. In addition, they noted that
we had not formally documented triggering events for impairment
testing under either standard. Consequently, we did not properly
identify the adjustments that arose due to the weakness in our
internal control process, and KPMG indicated that we need to
implement modifications and upgrades to our financial reporting
process to ensure that this situation does not occur in the
future.
The reportable condition and material weakness
have been discussed in detail by management, our Audit Committee
and KPMG, and we have authorized KPMG to respond fully to the
inquiries of BDO, our new independent auditors, concerning the
subject matter of the foregoing reportable conditions.
Nasdaq Delisting Hearing
As a result of the late filing of our Annual
Report on Form 10-K for our fiscal year ended
January 31, 2004 by the extended due date of April 30,
2004, we received a letter from the Nasdaq staff indicating that
we were not in compliance with the filing requirements for
continued listing on The Nasdaq National Market as set forth in
Nasdaq Marketplace Rule 4310(c)(14). As stated in the
Nasdaq letter, our common stock was subject to delisting from
The Nasdaq National Market because of such late filing. We
requested a hearing before the Nasdaq Listing Qualifications
Panel (the "Panel") to review the staff determination,
and the delisting proceedings were stayed automatically pending
the results of that hearing. That hearing was held on
May 27, 2004. Also on May 27, 2004, and prior to the
hearing, we filed our Annual Report on Form 10-K for our
fiscal year ended January 31, 2004, bringing us into
compliance with the Nasdaq standards for continued listing on
The Nasdaq National Market. On June 7, 2004, we received a
letter from Nasdaq containing the decision of the Panel. The
decision noted that, although we had filed our delinquent
Form 10-K and evidenced compliance with all other
requirements for continued listing on The Nasdaq National
Market, because of our recent change of auditors the Panel
determined to monitor our filing of this Quarterly Report on
Form 10-Q so as to ensure our continued compliance with the
Nasdaq's filing requirement in the near term. Thus, the
Panel determined to continue the listing of our securities on
the The Nasdaq National Market pursuant to a requirement that we
file our Form 10-Q for the first quarter of fiscal 2004 on
or before June 14, 2004.
F-69
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13.
Other Expenses of Issuance and
    Distribution.
The following table sets forth the various
expenses, all of which will be borne by the Registrant, in
connection with the sale and distribution of the securities
being registered, other than the underwriting discounts. All
amounts shown are estimates except for the Securities and
Exchange Commission registration fee.
SEC registration fee
$
6,507.52
Trustee fees and Expenses
25,000.00
Accounting fees and expenses
50,000.00
Legal fees and expenses
50,000.00
Printing and mailing expenses
25,000.00
Miscellaneous
5,000.00
Total
$
161,507.52
Item 14.
Indemnification of Directors and
    Officers
Our restated certificate of incorporation (the
"Charter") provides that we shall indemnify and
advance expenses to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law
("DGCL"), as amended from time to time, to each person
who is or was one of our directors or officers and the heirs,
executors and administrators of such a person. Any expenses,
including attorneys' fees, incurred by a person who is or
was one of our directors or officers, and the heirs, executors
and administrators of such a person in connection with defending
any such proceeding in advance of its final disposition shall be
paid by us; provided, however, that if the DGCL requires an
advancement of expenses incurred by an indemnitee in his
capacity as a director or officer, and not in any other capacity
in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit
plan, shall be made only upon delivery to us of an undertaking
by or on behalf of such indemnitee, to repay all amounts so
advanced, if it shall ultimately be determined that such
indemnitee is not entitled to be indemnified for such expenses.
Notwithstanding the aforementioned indemnification provisions,
we may, at the discretion of our chief executive officer, enter
into indemnification agreements with directors or officers.
Section 145 of the DGCL provides that a
corporation has the power to indemnify any director or officer,
or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in
the right of the corporation, by reason of the fact that such
director or officer or former director or officer is or was a
director, officer, employee or agent of the corporation, against
expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by
them in connection with such action, suit or proceeding, if such
person shall have acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, provided that such person had no reasonable cause to
believe his or her conduct was unlawful, except that, if such
action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have
been liable to the corporation unless and to the extent that the
Court of Chancery of the State of Delaware, or any court in
which such suit or action was brought, shall determine upon
application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity
for such expenses as such court shall deem proper.
Item 15.
Recent Sales of Unregistered
    Securities.
On August 2, 2001, we completed the
acquisition of all of the outstanding capital stock of CASS
Communications, Inc., an Illinois corporation with a principal
place of business in Evanston, Illinois ("CASS"), in
exchange for 1,720,392 unregistered shares of our common stock
issued to the former sole stockholder of
II-1
CASS, $9,700,000 in cash, a contingent note for
cash and the promise to issue additional shares of common stock
if certain performance targets were met during the 12-month
period following the acquisition. The contingent note expired
without any payments being made thereunder and no additional
shares of common stock were issued to the former stockholder of
CASS because the earnings target for the 12-month period
following the acquisition were not met. Of the shares issued in
this transaction, 258,059 shares were placed in escrow
pursuant to an escrow agreement, all of which shares were
released from escrow in August 2002.
On September 28, 2001, Alloy completed the
acquisition of all of the outstanding capital stock of
Dan's Competition, Inc. ("Dan's"), an
Indiana corporation with a principal place of business in Mt.
Vernon, Indiana in exchange for 2,081,037 unregistered shares of
our common stock; $11,000,000 in cash; and two contingent
promissory notes, which notes expired in November 2002 without
any payments being made thereunder. We issued an additional
37,037 shares of common stock as a working capital
adjustment to the purchase price. Of the shares issued in this
transaction, 370,370 shares were placed in escrow pursuant
to an escrow agreement, all of which shares were released from
escrow in October 2002.
On November 1, 2001, Alloy completed the
acquisition of all of the stock of Target Marketing &
Promotions, Inc. ("Target"), a Massachusetts
corporation that provides market research and promotional
activities and services targeted at the Generation Y audience.
To pay for the acquisition, we issued 204,967 unregistered
shares of our common stock. In addition, on September 13,
2002, December 19, 2002 and November 10, 2003, as
additional performance based consideration, we issued an
aggregate of 68,401, 484,975 and 619,101 shares of common
stock, respectively, based upon Target's earnings before
interest and taxes for the four fiscal quarterly periods and two
annual periods beginning November 1, 2001. Of the shares
issued in this transaction, 30,745 shares were placed in
escrow pursuant to an escrow agreement, all of which shares have
been released from escrow.
On November 1, 2001, Alloy entered into
definitive purchase agreements to sell 2.575 million shares
of newly issued common stock in a private placement to both new
institutional investors and existing shareholders for an
aggregate purchase price of $32,187,500.
On November 26, 2001, Alloy acquired
substantially all of the assets of the 360 Youth business of
MarketSource Corporation, a Delaware corporation
("MarketSource"), in exchange for 1,839,520
unregistered shares of our common stock; $13,375,000 in cash;
and two warrant to purchase up to 110,000 shares of Alloy
common stock, each at a price of $13.78 per share. In
accordance with its terms terms, the first warrant may be
exercised with respect to 50,000 shares of Common Stock on
or after November 26, 2002 and prior to November 26,
2007, and with respect to the remaining 50,000 shares of
Common Stock, on or after November 26, 2003 and prior to
November 26, 2008. The second warrant for
10,000 shares is currently exercisable and expires on
November 25, 2007. We also agreed to issue up to an
additional 1,545,197 shares of our common stock to the
former owner of 360 Youth if 360 Youth, as our new subsidiary,
met certain earnings targets over the 12-month period following
the closing of the acquisition. All of such
1,545,197 shares were issued on April 10, 2003. Of the
shares issued in this transaction, 283,286 were placed in escrow
as security for the indemnification of obligations of the former
owner of the 360 Youth business to us under the Purchase
Agreement between us and MarketSource, which escrowed shares
were released in November 2002 after the resolution of all
acquisition-related contingencies.
On January 28, 2002, we issued and sold to
Fletcher International, Ltd., a private investment entity,
1,367,366 shares of our common stock, at a purchase price
of $21.94 per share, for an aggregate purchase price of
$30,000,000, and issued a warrant to purchase up to
888,788 shares of our common stock, in each case subject to
adjustment under specified circumstances. As originally issued,
the warrant was exercisable in whole or in part at any time on
or prior to January 28, 2012 at an exercise price of
$21.94 per share, subject to adjustment. In [July], 2003,
the warrant was adjusted to become exercisable for up to
1,019,291 shares of our common stock at an exercise price
of $19.13. Each of the purchase price for our common stock and
the exercise price under the warrant was equal to approximately
111% of the closing price of our common stock on
January 25, 2002.
On March 20, 2002, we completed a merger to
acquire GFLA, Inc. ("GFLA"), a California corporation,
with a principal place of business in Valencia, California. In
connection with the merger, we issued 20,000 unregistered shares
of our common stock valued at $14.11 per share, for an
aggregate value of $282,200, and
II-2
warrants, valued at $690,925 to purchase up to
100,000 shares of unregistered common stock issued to the
former shareholders of GFLA. In valuing the warrants, we assume
dividend yield of 0%, volatility of 75%, risk-free interest rate
of 4.7%, and an expected life of one year. Each warrant entitles
its holder to purchase one share of common stock until
May 18, 2003 with respect to 50% of the warrants, and until
May 18, 2004 with respect to the remaining 50% of the
warrants, at an exercise price of $13.65 per share. GFLA is
a retailer and manufacturer of clothing and accessories
targeting the girls segment of the Generation Y market.
On June 10, 2002 and August 19, 2002,
as performance-based partial consideration for our prior
acquisitions of all of the issued and outstanding capital stock
of Triple Dot Communications, Inc. ("Triple Dot"), a
Massachusetts corporation, and all of the membership interests
of Y-Access LLC ("Y-Access"), a Massachusetts limited
liability company, we issued an aggregate of 93,570 shares
and 7,798 shares, respectively, of unregistered common
stock to the former two shareholders of Triple Dot and the
former four securityholders of Y-Access.
On October 23, 2002, as performance-based
partial consideration for our prior acquisition of all of the
Strength Magazine assets of Rapid Service Company ("Rapid
Service"), an Ohio corporation, we issued an aggregate of
27,248 shares of unregistered common stock to Rapid Service.
On or about November 1, 2002, as partial
consideration for our acquisition of substantially all of the
assets of Career Recruitment Media, Inc., an Illinois
corporation (CRM"), we issued to the sole shareholder of
CRM, a warrant to purchase up to 10,000 shares of our
common stock, subject to adjustment under specified
circumstances. The warrant is exercisable, in whole or in part,
at any time on or before November 1, 2004 at an exercise
price of $9.62 per share, subject to adjustment.
On July 24, 2003 we completed a private
offering of $65.0 million aggregate principal amount of our
5.375% Convertible Debentures due August 1, 2023, the
("Debentures") for aggregate net proceeds of
approximately $62.4 million. The Debentures have an annual
coupon rate of 5.375%, payable in cash semi-annually. Lehman
Brothers Inc., CIBC World Market Corp., J.P. Morgan
Securities Inc., and S.G. Cowen Securities Corporation (the
"Initial Purchasers") were the initial purchasers of
the Debentures. The Debentures are convertible at any time prior
to maturity, unless previously redeemed, at the option of the
holders into shares of Alloy common stock at a conversion price
of approximately $8.375 per share, subject to certain
adjustments and conditions. The Debentures are our general
unsecured obligations and will be equal in right of payment to
our existing and future senior unsecured indebtedness; and are
senior in right of payment to all of our future subordinated
debt. We may not redeem the Debentures until August 1,
2008. The holders of the Debentures may put the Debentures back
to us at par plus accrued but unpaid interest on each of
August 1, 2008, 2013 and 2018, subject to certain
conditions. On August 20, 2003, we issued and sold an
additional $4.3 million aggregate principal amount of our
Debentures to the Initial Purchasers, pursuant to the exercise
of an over-allotment option granted to the Initial Purchasers in
the purchase agreement relating to the Debentures.
On or about March 26, 2004, as partial
consideration for our acquisition of all of the issued and
outstanding stock of InSite Advertising, Inc., a New York
corporation ("InSite"), we issued to the former
shareholders of InSite, an aggregate of 560,344 shares of
our common stock.
The securities issued in the foregoing
transaction were offered and sold in reliance upon an exemption
from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), provided in
Section 4(2) of the Securities Act, and the regulations
promulgated thereunder, relating to sales by an issuer not
involving any public offering. No underwriters were involved in
the foregoing sales of securities.
Item 16.
Exhibits and Financial Statement
    Schedules.
(a)
Exhibits:
Exhibit
Number
2
.1
Acquisition Agreement by and among Alloy, Inc.,
    Dodger Acquisition Corp. and dELiA*s Corp., dated as of
    July 30, 2003 (incorporated by Reference to Alloy's
    Current Report on Form 8-K filed July 31, 2003).
II-3
Exhibit
Number
3
.1
Restated Certificate of Incorporation of Alloy
    Online, Inc. (incorporated by reference to Alloy's
    Registration Statement on Form S-1 filed March 10,
    1999 (Registration Number 333-74159)).
3
.2
Certificate of Amendment of Certificate of
    Incorporation of Alloy Online, Inc. (incorporated by reference
    to Alloy's Current Report on Form 8-K filed August 13,
    2001).
3
.3
Certificate of Amendment of Restated Certificate
    of Incorporation of Alloy Online, Inc. (incorporated by
    reference to Alloy's Current Report on Form 8-K filed
    March 13, 2002).
3
.4
Certificate of Designations, Preferences and
    Rights of the Series B Convertible Preferred Stock of Alloy
    Online, Inc. (incorporated by reference to Alloy's Current
    Report on Form 8-K filed June 21, 2001).
3
.5
Certificate of Designations of Series C
    Junior Participating Preferred Stock of Alloy, Inc.
    (incorporated by reference to Alloy's Current Report on
    Form 8-K filed April 14, 2003).
3
.6
Restated Bylaws (incorporated by reference to
    Alloy's Registration Statement on Form S-1 filed
    March 10, 1999 (Registration Number 333-74159)).
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
    November 26, 2001, issued by Alloy, Inc. to MarketSource
    Corporation (incorporated by reference to Alloy's Current
    Report on Form 8-K filed December 11, 2001).
4
.3
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
.4
Form of Warrant to Purchase Common Stock, dated
    as of June 19, 2001, issued by Alloy Online, Inc. to each
    of the purchasers of Alloy's Series B Preferred Stock
    (incorporated by reference to Alloy's Current Report on
    Form 8-K filed June 21, 2001).
4
.5
Warrant to Purchase Common Stock, dated as of
    March 18, 2002, issued by Alloy, Inc. to Craig T. Johnson
    (incorporated by reference to Alloy's 2002 Annual Report on
    form 10-K filed May 1, 2003).
4
.6
Warrants to Purchase Common Stock, dated as of
    March 18, 2002, issued by Alloy, Inc. to (i) Debra Lynn
    Millman, (ii) Kim Suzanne Millman, and (iii) Ronald J. Bujarski
    (substantially identical to Warrant referenced as
    Exhibit 4.5 in all material respects, and not filed with
    Alloy's 2002 Annual Report on Form 10-K, filed
    May 1, 2003, pursuant to Instruction 2 of
    Item 601 of Regulation S-K).
4
.7
Warrant to Purchase Common Stock, dated as of
    November 1, 2002, issued by Alloy, Inc. to Alan M. Weisman
    (incorporated by reference to Alloy's 2002 Annual Report on
    form 10-K filed May 1, 2003).
4
.8
Form of 5.375% Global Convertible Senior
    Debenture due 2023 in the aggregate principal amount of
    $69,300,000 (incorporated by reference to Alloy's
    Registration Statement on Form S-3 filed October 17,
    2003 (Registration Number 333-109786)).
4
.9
Indenture between Alloy, Inc. and Deutsche Bank
    Trust Company Americas, dated as of July 23, 2003
    (incorporated by reference to Alloy's Registration
    Statement on Form S-3 filed October 17, 2003
    (Registration Number 333-109786)).
5
.1
Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the debentures being registered (incorporated by
    referenced to Alloy's Registration Statement on
    Form S-3 filed October 17, 2003 (Registration
    Number 333-109786)).
5
.2**
Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the shares of common stock being registered.
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)).
II-4
Exhibit
Number
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
.3
Employment Agreement dated February 1, 2004
    between Matthew C. Diamond and Alloy Inc. (incorporated by
    reference to Alloy's Annual Report on Form 10-K, filed
    May 27, 2004)
10
.4
Employment Agreement dated February 1, 2004
    between James K. Johnson, Jr. and Alloy, Inc. (incorporated
    by reference to Alloy's Annual Report on Form 10-K, filed
    May 27, 2004).
10
.5
Employment Agreement dated April 19, 1999
    between Samuel A. Gradess 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
.6
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
.7
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
.8
Non-Competition and Confidentiality Agreement
    dated November 24, 1998 between Samuel A. Gradess 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
.9
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
.10
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
.11
Incentive Stock Option Agreement dated as of
    July 19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy's 2000 Annual Report on
    Form 10-K filed May 1, 2001).
10
.12
Non-Qualified Stock Option Agreement dated as of
    July 19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy's 2000 Annual Report on
    Form 10-K filed May 1, 2001).
10
.13
Flexible Standardized 401(k) Profit Sharing Plan
    Adoption Agreement (incorporated by reference to Alloy's
    Registration Statement on Form S-1 filed March 10,
    1999 (Registration Number 333-74159)).
10
.14
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
.15
Registration Rights Agreement, dated as of
    June 19, 2001, by and among Alloy Online, Inc, BayStar
    Capital, L.P., BayStar International, Ltd., Lambros, L.P.,
    Crosslink Crossover Fund III, L.P., Offshore Crosslink
    Crossover Fund III Unit Trust, Bayview Partners, the Peter
    M. Graham Money Purchase Plan and Trust and Elyssa Kellerman
    (incorporated by reference to Alloy's Current Report on
    Form 8-K filed June 20, 2001).
10
.16
Standard Office Lease between Arden Realty
    Finance Partnership, L.P. and Cass Communications, Inc., dated
    as of September 11, 1998 (incorporated by reference to
    Alloy's Quarterly Report on Form 10-Q filed
    September 14, 2001).
10
.16.1
First Amendment to Standard Office Lease, dated
    as of November 1, 2001, by and between Arden Realty Finance
    Partnership, L.P. and Alloy, Inc. (incorporated by reference to
    Alloy's 2001 Annual Report on Form 10-K filed May 1,
    2002).
10
.17
Lease Agreement by and between Bike Land, LLC and
    Dan's Competition, Inc., dated September 28, 2001
    (incorporated by reference to Alloy's Quarterly Report on
    Form 10-Q filed December 17, 2001).
10
.18
Modification to Lease, dated November 2,
    1999, by and between Alloy, Inc. and Abner Properties Company,
    dated April 16, 2002 (incorporated by reference to
    Alloy's Quarterly Report on Form 10-Q filed June 14,
    2002).
10
.18.1
Second Lease Modification Agreement between
    Alloy, Inc. and Abner Properties Company, c/o Williams Real
    Estate Co., Inc., dated as of January 28, 2002
    (incorporated by reference to Alloy's Annual Report on Form
    10-K filed May 1, 2002). Third lease modification dated
    August 31, 2002.
II-5
Exhibit
Number
10
.18.2
Third Lease Modification and Extension Agreement,
    dated as of August 31, 2002 between Abner Properties
    Company c/o Williams USA Realty Services, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy's Quarterly Report
    on Form 10-Q filed December 16, 2002).
10
.19
Assignment and Assumption of Lease between Alloy,
    Inc. and Goldfarb & Abrandt dated as of
    February 1, 2002 (incorporated by reference to Alloy's
    Annual Report on Form 10-K filed May 1, 2002).
10
.20
Master Services Agreement, dated as of
    February 1, 2002, by and between NewRoads, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy's Quarterly Report
    on Form 10-Q filed June 14, 2002).
10
.21
Amended and Restated 1996 Stock Incentive Plan of
    dELiA*s Inc. (incorporated by reference to dELiA*s Inc. Schedule
    14A filed June 12, 1998).
10
.21.1
First Amendment to dELiA*s Inc. Amended and
    Restated 1996 Stock Incentive Plan (incorporated by reference to
    Alloy's Registration Statement on Form S-8 filed
    October 17, 2003 (Registration Number 333-109788)).
10
.22
1998 Stock Incentive Plan of dELiA*s Inc.
    (incorporated by reference to dELiA*s Inc. Annual Report on Form
    10-K405, filed April 19, 1999).
10
.22.1
First Amendment to dELiA*s , Inc. 1998 Stock
    Incentive Plan (incorporated by reference to Alloy's
    Registration Statement on Form S-8, filed October 17,
    2003 (Registration Number 333-109788)).
10
.23
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
.23.1
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
.24
Lease Agreement dated May 3, 1995 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York (the 'Lease
    Agreement'); Modification and Extension of Lease Agreement,
    dated September 26, 1996 (incorporated by reference to the
    dELiA*s Inc. Registration Statement on Form S-1 filed
    January 25, 1999 (Registration No. 333-15153)).
10
.24.1
Agreement dated April 4, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Annual
    Report on Form 10-K filed).
10
.24.2
Agreement dated October 7, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Quarterly
    Report on Form 10-Q filed).
10
.25
Lease Agreement dated January 30, 2000 by
    and between iTurf Inc. and the State-Whitehall Company
    (incorporated by reference to iTurf Inc. Annual Report on Form
    10-K filed).
10
.26
Loan and Security Agreement dated as of
    September 24, 2001 by and among Wells Fargo Retail Finance
    LLC, dELiA*s Corp., dELiA*s Operating Company, dELiA*s
    Distribution Company and dELiA*s Retail Company (incorporated by
    reference to dELiA*s Inc. Current Report on Form 8-K filed
    October 10, 2001).
10
.26.1
First Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, dELiA*s Corp., dELiA*s
    Operating Company, dELiA*s Distribution Company and dELiA*s
    Retail Company, dated October 29, 2001 (incorporated by
    reference to dELiA*s Corp. Quarterly Report on Form 10-Q filed
    December 17, 2003).
10
.26.2
Second Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, dELiA*s Corp.,
    dELiA*s Operating Company, dELiA*s Distribution Company and
    dELiA*s Retail Company, dated October 21, 2002
    (incorporated by reference to dELiA*s Corp. Current Report on
    Form 8-K filed December 13, 2002).
10
.26.3
Third Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated December 18, 2002 (incorporated by reference
    to dELiA*s Corp. Current Report on Form 8-K filed
    February 26, 2003).
II-6
Exhibit
Number
10
.26.4
Fourth Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, as lender, and
    dELiA*s Corp., as lead borrower and agent for the other
    borrowers named within, dated February 10, 2003
    (incorporated by reference to dELiA*s Current Report on Form
    8-K, filed February 26, 2003).
10
.26.5
Fifth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated February 10, 2003 (incorporated by reference
    to dELiA*s Current Report on Form 8-K filed February 26,
    2003).
10
.26.6
Sixth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated April 29, 2003 ( incorporated by reference to
    dELiA*s 2002 Annual Report on Form 10-K filed May 16, 2003).
10
.27
Master License Agreement, dated February 24,
    2003, by and between dELiA*s Brand LLC and JLP Daisy LLC
    (incorporated by reference to dELiA*s Current Report on Form 8-K
    filed February 26, 2003).
10
.28
License Agreement, dated February 24, 2003,
    by and between dELiA*s Corp. and dELiA*s Brand LLC (incorporated
    by reference to dELiA*s Current Report on Form 8-K filed
    February 26, 2003).
10
.29
Employment Letter, dated October 27, 2003,
    between Alloy, Inc. and Robert Bernard (incorporated by
    reference to Alloy's Quarterly Report on Form 10-Q filed
    December 22, 2003).
10
.30
Alloy, Inc. Convertible Senior Debentures
    Purchase Agreement, dated as of July 17, 2003, by and among
    Alloy and the Initial Purchasers named therein (incorporated by
    reference to Alloy's Annual Report on Form 10-K, filed
    May 27, 2004).
10
.31
Resale Registration Rights Agreement dated as of
    July 31, 2003 between Alloy, Inc., Lehman Brothers, Inc.,
    CIBC World Markets Corp., JP Morgan Securities, Inc. and SG
    Cowen Securities Corporation (incorporated by reference to
    Alloy's Registration Statement on Form S-3, filed
    October 17, 2003 (Registration Number 333-109786)).
10
.32
Sublease Agreement, dated as of December 3,
    2003, by and between MarketSource, L.L.C. and 360 Youth, LLC
    (incorporated by reference to Alloy's Annual Report on Form
    10-K, filed May 27, 2004).
10
.33
Mortgage Note dated August 6, 1999 made by
    dELiA*s Distribution Company in favor of Allfirst Bank
    (incorporated by reference to dELiA*s Inc. Quarterly Report on
    Form 10-Q filed September 14, 1999).
10
.33.1
Mortgage Note Modification Agreement and
    Declaration of No Set-off dated April 19, 2004, between
    dELiA*s Distribution Company and Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy's Quarterly
    Report on Form 10-Q, filed June 9, 2004).
10
.34
Construction Loan Agreement dated August 6,
    1999, among dELiA*s Distribution Company, dELiA*s Inc. and
    Allfirst Bank (incorporated by reference to dELiA*s Inc.
    Quarterly Report on Form 10-Q filed September 14,
    1999).
10
.34.1
Amendment to Construction Loan Agreement, dated
    April 19, 2004, among dELiA*s Distribution Company, dELiA*s
    Corp. and Alloy, Inc. (incorporated by reference to Alloy's
    Quarterly Report on Form 10-Q, filed June 9, 2004).
10
.35
Continuing Guaranty dated April 19, 2004,
    given by dELiA*s Corp. in favor of Manufacturers and Traders
    Trust Company (incorporated by reference to Alloy's
    Quarterly Report on Form 10-Q, filed June 9, 2004).
10
.35.1
Continuing Guaranty dated April 19, 2004,
    given by Alloy, Inc. in favor of Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy's Quarterly
    Report on Form 10-Q, filed June 9, 2004).
12
.1*
Ratio of Earnings to Fixed Charges.
16
.1
Letter from KPMG LLP to the Securities and
    Exchange Commission dated June 7, 2004 (incorporated by
    reference to Alloy's Current Report on Form 8-K/A, filed
    June 9, 2004).
21
.1*
Subsidiaries of Alloy, Inc. as of June 30,
    2004.
23
.1*
Consent of KPMG LLP, Independent Registered
    Public Accounting Firm.
23
.2**
Consent of Katten Muchin Zavis Rosenman (included
    in Exhibits 5.1 and 5.2).
24
.1*
Power of Attorney (included on signature page).
II-7
Exhibit
Number
25
.1
Form T-1 Statement of Eligibility and
    Qualification under the Trust Indenture Act of 1939, under the
    Indenture (incorporated by reference to Alloy's
    Registration Statement on Form S-3 filed October 17,
    2003 (Registration Number 333-109786)).
*
Filed herewith.
**
To be filed by amendment.
(b)
Financial Statements Schedules
Financial Statements Schedules are omitted
because the information is included in the Financial Statements
or notes thereto.
Item 17.
Undertakings.
(a)
The Registrant hereby undertakes:
(1) to file, during any period in which
    offers or sales are being made, a post-effective amendment to
    this registration statement:
(i) To include any prospectus required by
    Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts
    or events arising after the effective date of the registration
    statement (or the most recent post-effective amendment thereof)
    which, individually or in the aggregate, represent a fundamental
    change in the information set forth in the registration
    statement;
(iii) To include any material information
    with respect to the plan of distribution not previously
    disclosed in the registration statement or any material change
    to such information in the registration statement.
(2) That, for the purpose of determining any
    liability under the Securities Act of 1933, each such
    post-effective amendment shall be deemed to be a new
    registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of
    a post-effective amendment any of the securities being
    registered which remain unsold at the termination of the
    offering.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
II-8
SIGNATURES
Pursuant to the requirements of the Securities
Act, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on
July 1, 2004.
ALLOY, INC.
(Registrant)
By:
/s/ MATTHEW C. DIAMOND
Name:  Matthew C. Diamond
Title:
Chief Executive Officer and Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each
individual whose signature appears below constitutes and
appoints Matthew C. Diamond and Samuel A. Gradess, and each of
them, as his or her true and lawful attorneys-in-fact and agent,
with full power of substitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to
this registration statement, and to sign any registration
statement for the same offering covered by this registration
statement that is to be effective upon filing pursuant to
Rule 462 promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with
all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his, her or
their substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
In accordance with the requirements of the
Securities Act, this registration statement was signed by the
following persons in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ MATTHEW C. DIAMOND
Matthew C. Diamond
Chief Executive Officer (Principal Executive
    Officer) and Chairman
July 1, 2004
/s/ SAMUEL A. GRADESS
Samuel A. Gradess
Chief Financial Officer (Principal Financial and
    Accounting Officer), Secretary and Director
July 1, 2004
/s/ JAMES K. JOHNSON, JR.
James K. Johnson, Jr.
President, Chief Operating Officer and Director
July 1, 2004
/s/ PETER M. GRAHAM
Peter M. Graham
Director
July 1, 2004
/s/ EDWARD MONNIER
Edward Monnier
Director
July 1, 2004
/s/ ANTHONY N. FIORE
Anthony N. Fiore
Director
July 1, 2004
II-9
INDEX TO EXHIBITS
Exhibit
Number
2
.1
Acquisition Agreement by and among Alloy, Inc.,
    Dodger Acquisition Corp. and dELiA*s Corp., dated as of
    July 30, 2003 (incorporated by Reference to Alloy's
    Current Report on Form 8-K filed July 31, 2003).
3
.1
Restated Certificate of Incorporation of Alloy
    Online, Inc. (incorporated by reference to Alloy's
    Registration Statement on Form S-1 filed March 10,
    1999 (Registration Number 333-74159)).
3
.2
Certificate of Amendment of Certificate of
    Incorporation of Alloy Online, Inc. (incorporated by reference
    to Alloy's Current Report on Form 8-K filed August 13,
    2001).
3
.3
Certificate of Amendment of Restated Certificate
    of Incorporation of Alloy Online, Inc. (incorporated by
    reference to Alloy's Current Report on Form 8-K filed
    March 13, 2002).
3
.4
Certificate of Designations, Preferences and
    Rights of the Series B Convertible Preferred Stock of Alloy
    Online, Inc. (incorporated by reference to Alloy's Current
    Report on Form 8-K filed June 21, 2001).
3
.5
Certificate of Designations of Series C
    Junior Participating Preferred Stock of Alloy, Inc.
    (incorporated by reference to Alloy's Current Report on
    Form 8-K filed April 14, 2003).
3
.6
Restated Bylaws (incorporated by reference to
    Alloy's Registration Statement on Form S-1 filed
    March 10, 1999 (Registration Number 333-74159)).
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
    November 26, 2001, issued by Alloy, Inc. to MarketSource
    Corporation (incorporated by reference to Alloy's Current
    Report on Form 8-K filed December 11, 2001).
4
.3
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
.4
Form of Warrant to Purchase Common Stock, dated
    as of June 19, 2001, issued by Alloy Online, Inc. to each
    of the purchasers of Alloy's Series B Preferred Stock
    (incorporated by reference to Alloy's Current Report on
    Form 8-K filed June 21, 2001).
4
.5
Warrant to Purchase Common Stock, dated as of
    March 18, 2002, issued by Alloy, Inc. to Craig T. Johnson
    (incorporated by reference to Alloy's 2002 Annual Report on
    form 10-K filed May 1, 2003).
4
.6
Warrants to Purchase Common Stock, dated as of
    March 18, 2002, issued by Alloy, Inc. to (i) Debra Lynn
    Millman, (ii) Kim Suzanne Millman, and (iii) Ronald J. Bujarski
    (substantially identical to Warrant referenced as
    Exhibit 4.5 in all material respects, and not filed with
    Alloy's 2002 Annual Report on Form 10-K, filed
    May 1, 2003, pursuant to Instruction 2 of
    Item 601 of Regulation S-K).
4
.7
Warrant to Purchase Common Stock, dated as of
    November 1, 2002, issued by Alloy, Inc. to Alan M. Weisman
    (incorporated by reference to Alloy's 2002 Annual Report on
    form 10-K filed May 1, 2003).
4
.8
Form of 5.375% Global Convertible Senior
    Debenture due 2023 in the aggregate principal amount of
    $69,300,000 (incorporated by reference to Alloy's
    Registration Statement on Form S-3 filed October 17,
    2003 (Registration Number 333-109786)).
4
.9
Indenture between Alloy, Inc. and Deutsche Bank
    Trust Company Americas, dated as of July 23, 2003
    (incorporated by reference to Alloy's Registration
    Statement on Form S-3 filed October 17, 2003
    (Registration Number 333-109786)).
5
.1
Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the debentures being registered (incorporated by
    referenced to Alloy's Registration Statement on
    Form S-3 filed October 17, 2003 (Registration
    Number 333-109786)).
5
.2**
Opinion of Katten Muchin Zavis Rosenman regarding
    the legality of the shares of common stock being registered.
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).
Exhibit
Number
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
.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
.3
Employment Agreement dated February 1, 2004
    between Matthew C. Diamond and Alloy Inc. (incorporated by
    reference to Alloy's Annual Report on Form 10-K, filed
    May 27, 2004)
10
.4
Employment Agreement dated February 1, 2004
    between James K. Johnson, Jr. and Alloy, Inc. (incorporated
    by reference to Alloy's Annual Report on Form 10-K, filed
    May 27, 2004).
10
.5
Employment Agreement dated April 19, 1999
    between Samuel A. Gradess 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
.6
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
.7
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
.8
Non-Competition and Confidentiality Agreement
    dated November 24, 1998 between Samuel A. Gradess 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
.9
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
.10
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
.11
Incentive Stock Option Agreement dated as of
    July 19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy's 2000 Annual Report on
    Form 10-K filed May 1, 2001).
10
.12
Non-Qualified Stock Option Agreement dated as of
    July 19, 2000 between Alloy Online, Inc. and Robert Bell
    (incorporated by reference to Alloy's 2000 Annual Report on
    Form 10-K filed May 1, 2001).
10
.13
Flexible Standardized 401(k) Profit Sharing Plan
    Adoption Agreement (incorporated by reference to Alloy's
    Registration Statement on Form S-1 filed March 10,
    1999 (Registration Number 333-74159)).
10
.14
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
.15
Registration Rights Agreement, dated as of
    June 19, 2001, by and among Alloy Online, Inc, BayStar
    Capital, L.P., BayStar International, Ltd., Lambros, L.P.,
    Crosslink Crossover Fund III, L.P., Offshore Crosslink
    Crossover Fund III Unit Trust, Bayview Partners, the Peter
    M. Graham Money Purchase Plan and Trust and Elyssa Kellerman
    (incorporated by reference to Alloy's Current Report on
    Form 8-K filed June 20, 2001).
10
.16
Standard Office Lease between Arden Realty
    Finance Partnership, L.P. and Cass Communications, Inc., dated
    as of September 11, 1998 (incorporated by reference to
    Alloy's Quarterly Report on Form 10-Q filed
    September 14, 2001).
10
.16.1
First Amendment to Standard Office Lease, dated
    as of November 1, 2001, by and between Arden Realty Finance
    Partnership, L.P. and Alloy, Inc. (incorporated by reference to
    Alloy's 2001 Annual Report on Form 10-K filed May 1,
    2002).
10
.17
Lease Agreement by and between Bike Land, LLC and
    Dan's Competition, Inc., dated September 28, 2001
    (incorporated by reference to Alloy's Quarterly Report on
    Form 10-Q filed December 17, 2001).
Exhibit
Number
10
.18
Modification to Lease, dated November 2,
    1999, by and between Alloy, Inc. and Abner Properties Company,
    dated April 16, 2002 (incorporated by reference to
    Alloy's Quarterly Report on Form 10-Q filed June 14,
    2002).
10
.18.1
Second Lease Modification Agreement between
    Alloy, Inc. and Abner Properties Company, c/o Williams Real
    Estate Co., Inc., dated as of January 28, 2002
    (incorporated by reference to Alloy's Annual Report on Form
    10-K filed May 1, 2002). Third lease modification dated
    August 31, 2002.
10
.18.2
Third Lease Modification and Extension Agreement,
    dated as of August 31, 2002 between Abner Properties
    Company c/o Williams USA Realty Services, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy's Quarterly Report
    on Form 10-Q filed December 16, 2002).
10
.19
Assignment and Assumption of Lease between Alloy,
    Inc. and Goldfarb & Abrandt dated as of
    February 1, 2002 (incorporated by reference to Alloy's
    Annual Report on Form 10-K filed May 1, 2002).
10
.20
Master Services Agreement, dated as of
    February 1, 2002, by and between NewRoads, Inc. and Alloy,
    Inc. (incorporated by reference to Alloy's Quarterly Report
    on Form 10-Q filed June 14, 2002).
10
.21
Amended and Restated 1996 Stock Incentive Plan of
    dELiA*s Inc. (incorporated by reference to dELiA*s Inc. Schedule
    14A filed June 12, 1998).
10
.21.1
First Amendment to dELiA*s Inc. Amended and
    Restated 1996 Stock Incentive Plan (incorporated by reference to
    Alloy's Registration Statement on Form S-8 filed
    October 17, 2003 (Registration Number 333-109788)).
10
.22
1998 Stock Incentive Plan of dELiA*s Inc.
    (incorporated by reference to dELiA*s Inc. Annual Report on Form
    10-K405, filed April 19, 1999).
10
.22.1
First Amendment to dELiA*s , Inc. 1998 Stock
    Incentive Plan (incorporated by reference to Alloy's
    Registration Statement on Form S-8, filed October 17,
    2003 (Registration Number 333-109788)).
10
.23
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
.23.1
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
.24
Lease Agreement dated May 3, 1995 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York (the 'Lease
    Agreement'); Modification and Extension of Lease Agreement,
    dated September 26, 1996 (incorporated by reference to the
    dELiA*s Inc. Registration Statement on Form S-1 filed
    January 25, 1999 (Registration No. 333-15153)).
10
.24.1
Agreement dated April 4, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Annual
    Report on Form 10-K filed).
10
.24.2
Agreement dated October 7, 1997 between
    dELiA*s Inc. and The Rector, Church Wardens and Vestrymen of
    Trinity Church in the City of New York, amending the Lease
    Agreement (incorporated by reference to dELiA*s Inc. Quarterly
    Report on Form 10-Q filed).
10
.25
Lease Agreement dated January 30, 2000 by
    and between iTurf Inc. and the State-Whitehall Company
    (incorporated by reference to iTurf Inc. Annual Report on Form
    10-K filed).
10
.26
Loan and Security Agreement dated as of
    September 24, 2001 by and among Wells Fargo Retail Finance
    LLC, dELiA*s Corp., dELiA*s Operating Company, dELiA*s
    Distribution Company and dELiA*s Retail Company (incorporated by
    reference to dELiA*s Inc. Current Report on Form 8-K filed
    October 10, 2001).
10
.26.1
First Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, dELiA*s Corp., dELiA*s
    Operating Company, dELiA*s Distribution Company and dELiA*s
    Retail Company, dated October 29, 2001 (incorporated by
    reference to dELiA*s Corp. Quarterly Report on Form 10-Q filed
    December 17, 2003).
10
.26.2
Second Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, dELiA*s Corp.,
    dELiA*s Operating Company, dELiA*s Distribution Company and
    dELiA*s Retail Company, dated October 21, 2002
    (incorporated by reference to dELiA*s Corp. Current Report on
    Form 8-K filed December 13, 2002).
Exhibit
Number
10
.26.3
Third Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated December 18, 2002 (incorporated by reference
    to dELiA*s Corp. Current Report on Form 8-K filed
    February 26, 2003).
10
.26.4
Fourth Amendment to Loan and Security Agreement
    by and among Wells Fargo Retail Finance LLC, as lender, and
    dELiA*s Corp., as lead borrower and agent for the other
    borrowers named within, dated February 10, 2003
    (incorporated by reference to dELiA*s Current Report on Form
    8-K, filed February 26, 2003).
10
.26.5
Fifth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated February 10, 2003 (incorporated by reference
    to dELiA*s Current Report on Form 8-K filed February 26,
    2003).
10
.26.6
Sixth Amendment to Loan and Security Agreement by
    and among Wells Fargo Retail Finance LLC, as lender, and dELiA*s
    Corp., as lead borrower and agent for the other borrowers named
    within, dated April 29, 2003 ( incorporated by reference to
    dELiA*s 2002 Annual Report on Form 10-K filed May 16, 2003).
10
.27
Master License Agreement, dated February 24,
    2003, by and between dELiA*s Brand LLC and JLP Daisy LLC
    (incorporated by reference to dELiA*s Current Report on Form 8-K
    filed February 26, 2003).
10
.28
License Agreement, dated February 24, 2003,
    by and between dELiA*s Corp. and dELiA*s Brand LLC (incorporated
    by reference to dELiA*s Current Report on Form 8-K filed
    February 26, 2003).
10
.29
Employment Letter, dated October 27, 2003,
    between Alloy, Inc. and Robert Bernard (incorporated by
    reference to Alloy's Quarterly Report on Form 10-Q filed
    December 22, 2003).
10
.30
Alloy, Inc. Convertible Senior Debentures
    Purchase Agreement, dated as of July 17, 2003, by and among
    Alloy and the Initial Purchasers named therein (incorporated by
    reference to Alloy's Annual Report on Form 10-K, filed
    May 27, 2004).
10
.31
Resale Registration Rights Agreement dated as of
    July 31, 2003 between Alloy, Inc., Lehman Brothers, Inc.,
    CIBC World Markets Corp., JP Morgan Securities, Inc. and SG
    Cowen Securities Corporation (incorporated by reference to
    Alloy's Registration Statement on Form S-3, filed
    October 17, 2003 (Registration Number 333-109786)).
10
.32
Sublease Agreement, dated as of December 3,
    2003, by and between MarketSource, L.L.C. and 360 Youth, LLC
    (incorporated by reference to Alloy's Annual Report on Form
    10-K, filed May 27, 2004).
10
.33
Mortgage Note dated August 6, 1999 made by
    dELiA*s Distribution Company in favor of Allfirst Bank
    (incorporated by reference to dELiA*s Inc. Quarterly Report on
    Form 10-Q filed September 14, 1999).
10
.33.1
Mortgage Note Modification Agreement and
    Declaration of No Set-off dated April 19, 2004, between
    dELiA*s Distribution Company and Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy's Quarterly
    Report on Form 10-Q, filed June 9, 2004).
10
.34
Construction Loan Agreement dated August 6,
    1999, among dELiA*s Distribution Company, dELiA*s Inc. and
    Allfirst Bank (incorporated by reference to dELiA*s Inc.
    Quarterly Report on Form 10-Q filed September 14,
    1999).
10
.34.1
Amendment to Construction Loan Agreement, dated
    April 19, 2004, among dELiA*s Distribution Company, dELiA*s
    Corp. and Alloy, Inc. (incorporated by reference to Alloy's
    Quarterly Report on Form 10-Q, filed June 9, 2004).
10
.35
Continuing Guaranty dated April 19, 2004,
    given by dELiA*s Corp. in favor of Manufacturers and Traders
    Trust Company (incorporated by reference to Alloy's
    Quarterly Report on Form 10-Q, filed June 9, 2004).
10
.35.1
Continuing Guaranty dated April 19, 2004,
    given by Alloy, Inc. in favor of Manufacturers and Traders Trust
    Company (incorporated by reference to Alloy's Quarterly
    Report on Form 10-Q, filed June 9, 2004).
12
.1*
Ratio of Earnings to Fixed Charges.
16
.1
Letter from KPMG LLP to the Securities and
    Exchange Commission dated June 7, 2004 (incorporated by
    reference to Alloy's Current Report on Form 8-K/A,
    filed June 9, 2004.
21
.1*
Subsidiaries of Alloy, Inc. as of June 30,
    2004.
Exhibit
Number
23
.1*
Consent of KPMG LLP, Independent Registered
    Public Accounting Firm.
23
.2**
Consent of Katten Muchin Zavis Rosenman (included
    in Exhibits 5.1 and 5.2).
24
.1*
Power of Attorney (included on signature page).
25
.1
Form T-1 Statement of Eligibility and
    Qualification under the Trust Indenture Act of 1939, under the
    Indenture (incorporated by reference to Alloy's
    Registration Statement on Form S-3 filed October 17,
    2003 (Registration Number 333-109786)).
*
Filed herewith.
**
To be filed by amendment.