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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number: 000-26023

Alloy, Inc.

Exact name of registrant as specified in charter

151 WEST 26TH STREET, 11TH FLOOR

NEW YORK, NY 10001

(Address of principal executive office)

(212) 244-4307

(Registrant’s telephone number, including area code)

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

NONE

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

COMMON STOCK, PAR VALUE $0.01

PREFERRED STOCK PURCHASE RIGHTS

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

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      The aggregate market value, based upon the closing sale price of the shares as reported by the NASDAQ National Market, of voting and non-voting common equity held by non-affiliates as of July 30, 2004 was $171,761,946 (excludes shares held by executive officers, directors, and beneficial owners of more than 10% of the Registrant’s Common Stock). Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of management or policies of the registrant or that such person is controlled by or under common control with the registrant.

      The number of shares of the registrant’s Common Stock outstanding as of April 14, 2005 was 43,179,579.

      Certain information in the registrant’s definitive proxy statement for its 2005 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year end, is incorporated by reference into Part III of this Report.

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INDEX

PART I

Overview

      We are a media, marketing services, direct marketing and retail company primarily targeting Generation Y, the approximately 60 million boys and girls in the United States between the ages of 10 and 24. Our business is comprised of two distinct divisions: Alloy Media + Marketing and Alloy Merchandising Group.

      Alloy Media + Marketing is a business that provides targeted media and promotional programs for advertisers who want to market to Generation Y. This business is a non-traditional advertising company and uses, among other methods, print media, display media boards, database marketing, websites, promotional events, and on-campus marketing programs to reach Generation Y consumers.

      Alloy Merchandising Group is a retail business that sells apparel and accessories to Generation Y via mall-based stores, catalogs and the Internet under the brand names dELiA*s, Alloy, CCS and Dan’s Competition (“Dan’s Comp”).

      As a result of our widely circulated catalogs, our retail stores and our database of 31 million Generation Y consumers, we believe that our brands are well-known and popular with our target audience. 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. The youth market is large. According to the United States Census Bureau, about 35% of the United States population is under the age of 24. According to studies by Harris Interactive, the projected annual income for 8-21 year old persons is about $199 billion and annual spending is about $148 billion per year — about $2,500 in spending per person. Harris Interactive studies have also shown that the college market is large and influential, with approximately 14.1 million college students in the United States who control about $24 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 $402.5 million for the fiscal year ended January 31, 2005.

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

      Within our two divisions, we generate revenue from three reportable segments:

Alloy Merchandising Group

Direct Marketing Segment

      Our direct marketing segment derives revenues from sales of merchandise to consumers through our catalogs and websites. Direct marketing revenues for the fiscal years ended January 31, 2005 (“fiscal 2004”), January 31, 2004 (“fiscal 2003”) and January 31, 2003 (“fiscal 2002”) were $154.3 million, $156.8 million, and $167.6 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 40 to 80 pages and offers for sale an assortment of apparel, accessories, and footwear targeting Generation Y girls. During fiscal 2004, we mailed 14 versions of the Alloy catalog and allocated up to 8 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 and cosmetics that are available in our Alloy catalogs, as well as additional products and special offers.

      dELiA*s — Our dELiA*s catalog, targeting Generation Y girls, ranges from 48 to 100 pages in length and offers a variety of apparel, accessories and home furnishings. We acquired dELiA*s in September 2003. During fiscal 2004, 15 versions of the dELiA*s catalog were mailed and up to 8 pages per catalog were allocated to our advertising clients and marketing partners. 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 30 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 2004 and allocated up to 6 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 100 to 108 pages, focuses on the BMX bike market and offers BMX bikes, parts and safety equipment, as well as related apparel, accessories and footwear. We mailed 6 versions of the Dan’s Comp catalog during fiscal 2004 and allocated up to 6 pages per catalog to our advertising and marketing clients. 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.

      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 six 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 rely heavily on domestic vendors who, generally speaking, have the ability to deliver products faster than foreign-based vendors. 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 have several methods for clearing slow moving inventory, ranging from clearance sales to tent sales to Internet offers. These methods complement 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, IT Jeans, and Puma. Brands currently offered through Alloy include nationally recognized names such as Vans, Roxy/ Quiksilver and Dollhouse, as well as smaller, niche labels, including Paris Blues and Vigoss. CCS carries merchandise and equipment from major action sports brands such as World Industries, Osiris and Nike. 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.

      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. In fiscal 2004, we shipped an average of 21,000 units to retail stores and 9,000 customer packages per day from this center. Our busiest

shipping days for dELiA*s involved shipping 88,000 units to retail stores and 28,000 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 consolidate substantially all of our fulfillment activities for our Alloy and CCS units to our distribution center in Hanover, Pennsylvania, where dELiA*s customer orders are also processed. During 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 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 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 card 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.

      Sales personnel are available for the Alloy brand 24 hours a day, 7 days a week through multiple toll-free telephone numbers and trained customer service representatives are available from 8:00 A.M. to 12:00 A.M Eastern Time (“ET”), 7 days a week. CCS trained customer service representatives and sales personnel are available from 8:00 A.M. to 1:00 A.M. ET, 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. ET, 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 12:00 A.M. ET, 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 handles 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 of apparel and accessories to consumers through dELiA*s retail and outlet stores. Our operation of all dELiA*s stores commenced with the acquisition of dELiA*s in September 2003. The dELiA*s retail stores display merchandise exclusively in mall stores and sell directly to customers who visit those locations. As of January 31, 2005, we operated 55 dELiA*s stores, including 6 outlet stores, in 22 states. Our retail stores range in size from 2,500 to 5,150 square feet, with an average size of approximately 3,770 square feet. Retail stores segment revenues for fiscal 2004 were $64.0 million, including $7.2 million from our outlet stores.

      Store Operations. Each store is open during mall shopping hours and has a manager, one or more assistant managers, and approximately six to twelve part-time sales associates. District managers supervise approximately four to seven stores covering a wide geographic area, with approximately four or five district managers reporting to one of two regional managers. District managers, store managers, assistant store managers and part-time sales associates participate in an incentive program which is based on achieving predetermined sales-related goals in their respective stores or districts. 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 and ensure policy and procedure compliance.

      During fiscal 2004, we did not open any new dELiA*s stores. Historically, dELiA*s’ site selection strategy has been to locate its stores primarily in regional malls serving markets that meet its demographic criteria, including average household income and population density. In addition, dELiA*s has aligned potential sites with the concentration of customers in its direct marketing segment. 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. In fiscal 2004, we closed 6 of the 17 dELiA*s retail stores which had previously been identified as having the potential to be closed during the fiscal 2003 assessment of dELiA*s’ store portfolio. This assessment included an estimation of store exit, lease costs, and severance. Additionally, we closed one other store due to the expiration of the lease. We continue to evaluate underperforming stores as we rationalize our current portfolio and execute our dELiA*s retail store operations.

      The growth of the retail stores segment is dependent upon our ability to operate stores on a profitable basis. As we decide to open additional retail locations, 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, the negotiation of acceptable lease terms, the acquisition of adequate merchandise supply, and the hiring and training of qualified management and other employees.

Alloy Media + Marketing

Sponsorship and Other Activities Segment

      Alloy Media + Marketing generates revenue in our sponsorship and other activities segment This segment derives revenue largely from traditional, blue chip advertisers that seek highly targeted, measurable and effective marketing programs primarily 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 2004, 2003 and 2002 were $184.3 million, $185.0 million, and $131.8 million, respectively.

      “Alloy Media + Marketing” is the umbrella name for all of our media and marketing brands, which include: Alloy Marketing and Promotions, 360 Youth, American Multicultural Marketing/ Market Place Media, Alloy Education, Alloy Entertainment, Alloy Out-of-Home, and Alloy Mall Marketing Services.

On Campus Marketing (“OCM”)

      OCM 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 directly or through one of its divisions, Collegiate Carpets or Carepackages.

      Our advertising sales organization includes over 120 sales professionals who are either account managers generally responsible for specific geographic regions or product specialists. Our account managers and product specialists work closely together to cross-sell our media assets and marketing capabilities to existing advertising customers and to build relationships with new advertisers. Our account managers are trained and motivated to sell the entire portfolio of our media and advertising services, including:

      Our advertisers come from a wide range of industries that target the Generation Y audience, including apparel, consumer goods and electronics, health and beauty, entertainment, financial services, colleges and universities, food and beverage and others.

Infrastructure, Operations and Technology

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

      Where appropriate, we have implemented disaster recovery programs for our various businesses. Critical files are copied to backup tapes each night and regularly stored at secure 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 connect to uninterruptible power supplies to provide back-up power at the operations facilities within milliseconds of a power outage. Redundant Internet connections and providers deliver similar protection for our online services. We strive for no downtime in our online services. Critical network components of the system are also redundant. We implemented these various redundancies and backup measures in order to minimize the risk associated with unexpected component failure, maintenance or upgrades, or damage from fire, power loss, telecommunications failure, break-ins, computer viruses, “denial of service” (DOS) attacks, hacking and other events beyond our control.

      Currently, we license commercially available technology whenever possible instead of dedicating our financial and human resources to developing proprietary online infrastructure solutions. We provide most services related to maintenance and operation of our websites internally, under the direction of our Chief Technology Officer. SAVVIS Communications Corp and Equinix Inc., third-party providers located in Sterling, Virginia and Ashburn, Virginia, respectively, provide us with co-location, power and bandwidth (i.e., our Internet connection). Our infrastructure is scaleable which allows us to adjust quickly to our expanding user base. We took steps upon the acquisition of dELiA*s to migrate its commercial systems from the Savvis data center in Jersey City, New Jersey into our standard, redundant facility in Virginia. This migration was completed in the second quarter of fiscal 2004. Other data and voice systems in the call center and fulfillment center were hardened and made redundant with the addition of backup circuits, sonet rings, and other system upgrades. These initiatives were also completed in 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-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 target, as we do, 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:

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 typically 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 as well as 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 trademarks and service marks are currently pending. We also use trademarks, trade names, logos and endorsements of our suppliers and partners with their permission.

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 e-mail (“spamming”) and characteristics and quality of products and services. Laws with respect to community websites may cover content, copyrights, libel, obscenity and personal privacy. Any new legislation or regulation or the application of existing laws and regulations to the Internet could have a material and adverse effect on our business, results of operations and financial condition.

      Governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities even though we do not 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 such websites, 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 enforcement actions by the FTC, complaints to the FTC by individuals, or face a civil penalty, any of 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. Well-publicized breaches of data privacy and consumer personal information have caused federal and state legislators to introduce data privacy legislation at the state and federal level, any of which, if enacted, could adversely affect our business. Several states, including California and Pennsylvania, have recently enacted legislation penalizing the misuse of personal information in violation of published privacy policies. In addition to the specific privacy policy statutes, the FTC and attorneys general in several states have investigated the use of personal information by some Internet companies under existing consumer protection laws. In particular, an attorney general may examine privacy policies to ensure that a company fully complies with representations in the policies regarding the manner in which the information provided by consumers and other visitors to a website is used and disclosed by the company and the failure to do so could give rise to a complaint under state or federal unfair competition or consumer protection laws. 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, and became effective on January 1, 2004. The FTC has promulgated various regulations applying CAN-SPAM and has enforcement authority for violations of CAN-SPAM. CAN-SPAM regulates “commercial electronic mail messages,” (i.e., e-mail) the primary purpose of which is to promote a product or service. Among its provisions are ones requiring specific types of disclosures in covered e-mails, 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. Although the FTC has publicly announced that it does not at the present time intend to do so, CAN-SPAM further authorizes the FTC to establish a national “Do Not E-Mail” registry akin to the recently adopted “Do Not Call Registry” relating to telemarketing. Any entity that sends commercial e-mail messages, such as Alloy and our various subsidiaries, and those who re-transmit such messages, must adhere to the CAN-SPAM requirements. The Federal Communications Commission has also recently promulgated CAN-SPAM regulations prohibiting the sending of unsolicited commercial electronic e-mails to wireless e-mail addresses and has released a “Do Not E-Mail” registry applicable to wireless domain addresses, some of which may be in our databases. Compliance with these provisions may limit our ability to send certain types of e-mails on our own behalf and on behalf of various of our advertising clients, which may adversely affect our business. While we intend to operate our businesses in a manner that complies with the CAN-SPAM provisions, we may not be successful in so operating. If it turns out we have violated the provisions of CAN-SPAM we may face enforcement actions by the FTC or FCC or face civil penalties, either of which could adversely affect our business.

      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 has been passed in other jurisdictions, including Canada, 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, 2005, we had 1,282 full-time and 3,812 part-time employees. Of the 1,282 full-time employees, 39 were senior management; 430 worked in sales, marketing and sales support; 65 worked in finance; 329 worked in warehouse/fulfillment/customer service; 236 worked in other management and personnel; and 183 were employed by our dELiA*s retail stores. The 3,812 part-time staff primarily includes employees working on Alloy Media + Marketing promotional and marketing events, in our dELiA*s retail stores and at our merchandising warehouse/fulfillment and customer service facilities.

      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 18 to our consolidated financial statements referenced in Item 8 of this Annual Report on Form 10-K and presented in the annex, beginning at page F-1, as well as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to such reports.

Website Access to Reports

      Our corporate website is WWW.ALLOYINC.COM. Our periodic and current reports, and any amendments to those 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 items and information on our website are not a part of this Annual Report on Form 10-K.

Risk Factors That May Affect Future Results

      The following risk factors and other information included in this report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected.

Risks Related to Our Businesses

      Since our inception in January 1996, we have incurred significant net losses. We have reported positive net income for only one full fiscal year (fiscal 2002). As of January 31, 2005, we had an accumulated deficit of approximately $218.9 million.

      Since our inception, we have rapidly expanded our business, growing from revenues of $2.0 million for fiscal 1997 to $402.5 million for fiscal 2004. 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 any new media franchises that we create or acquire. Our ability to implement our growth strategy will also depend on a number of other factors, many of which are or may be beyond our control, including the continuing appeal of our media and marketing properties to Generation Y consumers, the continued perception by participating advertisers and sponsors that we offer an effective marketing channel for their products and services, our ability to select products that appeal to our customer

base and to market such products effectively to our target audience, our ability to attract, train and retain qualified employees and management and our ability to make additional strategic acquisitions. There can be no assurance that we will be able to implement our growth strategy successfully.

      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, or if the quality of the information we gather suffers, our business could be adversely affected. Moreover, other Generation Y- focused media businesses possess similar information about some segments of our target market. 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.

      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 Alloy Media + Marketing brands, including Market Place Media, 360 Youth and Private Colleges & Universities, 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, the license of the dELiA*s brand to JLP Daisy LLP 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 intend to 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. In addition, we currently plan to undertake a roll-out of additional and new items in our retail business. If these items do not appeal to our targeted Generation Y consumers, our business will suffer materially. Misjudgments by us with respect to these matters 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.

      We rely on the protection of trademarks, trade secrets, know-how, confidential and proprietary information to maintain our competitive position. To maintain the confidentiality of trade secrets and proprietary information, we generally enter into confidentiality agreements with our employees, consultants, and contractors upon the commencement of our relationship with them. These agreements typically require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Even if obtained, these agreements may not provide meaningful protection for our trade secrets or other proprietary information or an adequate remedy in the event of their unauthorized use or disclosure. The loss or exposure of our trade secrets or other proprietary information could impair our competitive position.

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

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

      Our 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.

      In keeping with our intention to eventually separate our merchandising business from our media and marketing services business and finance a meaningful expansion of our retail franchise, we have entered into a letter of agreement with our largest shareholder, MLF Investments LLC, (which is controlled by one of our directors), whereby MLF Investments has agreed to backstop a $20 million rights offering. As part of the rights offering, persons receiving stock in the merchandising business in a full or partial spin-off would receive, at no cost, rights to purchase shares of common stock of the merchandise business at a specified exercise price. If the separation of the merchandising business does proceed, no assurance can be given that the remaining media and marketing services business would be able to thrive as a stand-alone entity, or that the newly separate merchandising business would succeed as a new entity. Any existing synergies that had resulted from the operation of the two businesses as part of the same entity would no longer be available to either company, and as a result both companies’ businesses and results of operations could suffer, if we decide to proceed with the separation.

      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.

      Since our acquisition of dELiA*s in September 2003, we have closed 8 retail stores as of January 31, 2005. Also, during the second quarter of fiscal 2004, we discontinued 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, in order to allow us to focus on our core direct marketing brands. In the future, we could decide to close dELiA*s retail stores 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 additional 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 severance obligations for the employees at such stores. These costs could negatively impact our financial results and cash position.

      dELiA*s promotion and sale of dELiA*s branded products have increased 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.

      Following our decision to consolidate our 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 could have a material adverse effect on our operations and results.

      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 that could substantially affect our reported earnings in a period of such change. For instance, during the fourth quarter of fiscal 2004 we completed our annual impairment review and recorded a $71.1 million charge to reduce the carrying value of goodwill and an approximate $1.0 million charge to reduce the carrying value of indefinite-lived intangible assets. The combined $72.1 million charge is reflected as a component of loss from operations 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, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), we performed an analysis of the recoverability of certain long-lived assets during the fourth quarter of fiscal 2004 and recorded an asset impairment charge of approximately $942,000.

      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 additional equity securities in connection with acquisitions, potentially on terms that could be dilutive to our existing stockholders.

      Catalog response rates usually decline when we mail additional catalog editions within the same fiscal period. In addition, if we increase the number of catalogs distributed or mail our catalogs to a broader group of new potential customers, we believe that these new potential customers may 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 catalogs historically have declined in the short-term in geographic regions where new stores have opened. 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.

      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:

      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 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, in time to meet customer demand, 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.

      Because of the 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 could be materially and adversely affected and our stock price could decline.

      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.

      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.

      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 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.

      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, with these regulations, 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 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 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.

      To the extent that our activities or the activities of third-party contractors involve the storage and transmission of information, such as credit card numbers, security breaches could disrupt our business, damage our reputation and expose us to a risk of loss or litigation and possible liability. We could be liable for claims based on unauthorized purchases with credit card information, impersonation or other similar fraud claims. These claims could result in substantial costs and a diversion of our management’s attention and resources.

Risks Relating to Our Common Stock

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

      We 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. 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. For more information on these litigations and others see Part I, Item 3, Legal Proceedings, of this Annual Report on Form 10-K.

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

      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.

      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 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.

      The following table sets forth information regarding the principal facilities, excluding retail stores, that we used during fiscal 2004. 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.

      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 the Company, James K. Johnson, Jr., Matthew C. Diamond, BancBoston Robertson Stephens, Volpe Brown Whelan and Company, Dain Rauscher Wessel and Landenburg Thalmann & Co., Inc. The complaint purportedly was filed on behalf of persons purchasing Company

stock between May 14, 1999 and December 6, 2000, and alleged 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 the Company, the individual defendants and the underwriters of the Company’s initial public offering. The amended complaint asserted violations of Section 10(b) of the ’34 Act and mirrored 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 were 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 complaint, 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 the Company, the Court dismissed the Section 10(b) claim and let the plaintiffs proceed on the Section 11 claim. The Company participated in 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. In June 2004, as a result of the mediation, a Settlement Agreement was executed on behalf of issuers (including the Company), insurers and plaintiffs and submitted to the Court. Any definitive settlement, however, will require final approval by the Court after notice to all class members and a fairness hearing. If such approval is obtained, all claims against the Company and the individual defendants will be dismissed with prejudice.

      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 the Company, 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 the Company 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. The parties have entered into a stipulation providing for the settlement of the claims against all defendants including the Company, for $6.75 million. That amount, was paid by the Company’s insurers, and was being held in escrow pending entry of an order and judgment following a hearing on the fairness of the proposed settlement. That hearing took place on November 5, 2004 and the District Court approved the stipulation and settlement and ordered that the class action litigation be dismissed with prejudice on December 2, 2004.

      dELiA*s was a 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 settlement, which was approved by the Court in April, 2004, became effective on August 23, 2004. The entire settlement amount was 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. 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 by our counsel and others on behalf of defendants in similar actions being pursued by the Illinois Attorney General, and, together with such other defendants, filed on August 6, 2004 a Consolidated Joint Reply In Support Of Defendants’ Combined Motion To Dismiss. Oral argument on the motion to dismiss was held on September 22, 2004, and dELiA*s submitted a Supplemental Brief in support of its Motion to Dismiss on Common Grounds on October 13, 2004. On January 13, 2005, an order was entered by the Circuit Court denying Defendants’ Motion to Dismiss. On February 14, 2005, dELiA*s filed a Motion For Leave to File an Interlocutory Appeal, which was granted by the Circuit Court on March 15, 2005, finding there were issues of law to be determined. On April 8, 2005, dELiA*s filed a petition with the Illinois Appellate Court to consider and hear the appeal. All proceedings in this matter are stayed pending the resolution of the appeal. Management believes the proceedings will not have a material adverse effect on our financial condition or operating results.

      On or about April 6, 2005, a complaint was filed against the Company by NCR Corporation (“NCR”) in the United States District Court for the Southern District of Ohio Western Division (Dayton) alleging that the Company has been infringing upon seven patents owned by NCR. The complaint does not specify a specific dollar amount of damages sought by NCR. The Company believes these allegations are without merit.

      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.

      No matter was submitted to a vote of our security holders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.

PART II

Market Information

      Our Common Stock has traded on The NASDAQ National Market under the symbol “ALOY” since our initial public offering in May 1999. The last reported sale price for our Common Stock on April 14, 2005 was $5.21 per share. The table below sets forth the high and low sale prices for our Common Stock during the periods indicated.

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

Stockholders

      As of April 14, 2005, there were approximately 132 holders of record of the 43,179,579 outstanding shares of Common Stock.

Dividends

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

Unregistered Sales of Securities

      On or about March 26, 2004, we issued an aggregate of 560,344 shares of Common Stock in connection with our acquisition of Insite Advertising, Inc., of which 442,975 shares were issued to the former owners of InSite Advertising, Inc., 86,207 shares are currently held in escrow to cover certain indemnification obligations of the former owners, and 31,162 shares were returned to Alloy as treasury stock as a result of a share reevaluation provision.

      The securities issued in the foregoing transactions were offered and sold in reliance upon exemptions from the registration requirements of The Securities Act of 1933, as amended, provided by Regulation D under Section 4(2) of the Securities Act relating to sales by an issuer not involving a public offering. No underwriters were involved in the foregoing issuance of securities.

Issuer Purchases of Equity Securities

      During the first three quarters of fiscal 2004, the Company did not purchase any shares of its Common Stock. The following table provides information with respect to purchases by the Company of shares of its Common Stock during the fourth quarter of 2004:

      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 Annual Report on Form 10-K.

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

Executive Summary and Outlook

      We are a media, marketing services, direct marketing and retail company primarily targeting Generation Y, the approximately 60 million boys and girls in the United States between the ages of 10 and 24. Our business is comprised of two distinct divisions: Alloy Merchandising Group and Alloy Media + Marketing. Alloy Merchandising Group consists of the direct marketing and retail stores reportable segments. Alloy Media + Marketing consists of the sponsorship and other activities reportable segment. Our direct marketing segment derives revenues from sales of merchandise to consumers through our catalogs and websites. Our retail stores segment derives revenue primarily from the sale, through dELiA*s retail and outlet stores, of merchandise to consumers. Our sponsorship and other activities segment derives revenue largely from traditional blue chip advertisers that seek to market Generation Y through our products and services including but not limited to our print publications, websites, and display media boards, as well as through promotional events, product sampling, customer acquisition programs and other marketing programs.

      Our loss from operations in fiscal 2004 was $86.7 million while our loss from operations in fiscal 2003 was $67.7 million. Our operating loss in fiscal 2004 is primarily the result of the write-down of goodwill and other intangible assets in our sponsorship and other segment, the losses associated with our dELiA*s retail stores, as reported in our retail stores segment, and increased corporate expenses due to our enlarged business and costs we faced as a result of increased litigation and related matters.

      With respect to our direct marketing and retail segments (collectively referred to as the merchandising businesses), much of our emphasis in 2004 has been placed on deriving synergies from the dELiA*s acquisition purchased in September of 2003. During the first half of the fiscal 2004, we ceased the operations of our Girlfriends LA and Old Glory catalog businesses, enabling us to remain focused on dELiA*s and Alloy as our brands to the Generation Y girl market and on CCS and Dan’s Comp as our brands to the Generation Y boy market. We also relocated the fulfillment and call center activities for the Alloy and CCS catalogs from a third-party facility to more efficient Company-owned facilities. We closed seven dELiA*s retail stores during fiscal 2004, and are now beginning to consider expanding our stores in a more effective and strategic manner. During the third quarter, we began to realize many of the synergies we expected 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 and Westerville, Ohio contact center. We anticipate that we will continue to realize these savings going forward.

      We continue to review expansion of our sponsorship and other businesses while also undertaking cost saving opportunities. In March 2004 we acquired InSite Advertising Inc., a national indoor media company, to further extend our marketing reach to include the 18-34 year old demographic. In addition, during the second quarter of fiscal 2004, 360 Youth, our youth media and marketing arm, entered into an arrangement with Regal CineMedia Corporation^sm, the media subsidiary of Regal Entertainment Group (“REG”), the largest theatre operator in the world, to establish a multi-faceted, targeted marketing channel throughout REG’s theatre circuit. The REG theatre network extends our advertising reach to over 300 million annual theatergoer visits, and marks our further expansion from our youth market foundation into the young adult market. Separately, in an effort to improve earnings in our sponsorship business we have been selectively eliminating positions and reducing other fixed costs, while adding sales specialists in a number of our business units to pursue regional and local sales opportunities.

      A number of key management changes have been made in strategic areas to establish the creative, buying and planning teams necessary to execute the successful selection and presentation of merchandise to gain consumer acceptance. We have also added a number of individuals in our sponsorship division as a result of acquisitions and other hires. We believe that these individuals are highly qualified for the positions for which they were hired and bring with them extensive cross-functional management skills. As an overall corporate initiative, we intend to continue pursuing our previously announced exploration of separating our sponsorship and merchandising businesses at an opportune time in the foreseeable future.

      We have entered into a letter of agreement with our largest shareholder, MLF Investments LLC (which is controlled by one of our directors), whereby MLF Investments has agreed to backstop a contemplated $20 million rights offering of shares of common stock of the merchandise business at a specified exercise price. By agreeing to backstop this proposed offering, MLF Investments has committed to purchasing the unsubscribed portion of such shares. The letter agreement contemplates an exercise price that would be equivalent to a $175 million pre-money valuation on the merchandise business. As we pursue strategic alternatives for positioning and financing the merchandise business, we believe that the arrangement we have made with MLF Investments presents an option. The Company is currently analyzing a number of strategic alternatives for its merchandising business. No decision has yet been made by the Board to proceed with either the separation of the merchandise business or the rights offering, and no determination has yet been made about possible distribution ratios for the potential separation or subscription ratios for the possible rights offering. In the meantime, the Company has decided to redeem its Series B Preferred Stock in exchange for Alloy Common Stock to devote corporate capital to fund retail expansion and other operational requirements.

Critical Accounting Policies and Estimates

      Management’s Discussion and Analysis of Financial Condition and Results of Operations 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.

      Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. The estimates that required management’s most difficult, subjective or complex judgments are described below:

      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 $10.7 million, $12.9 million and $14.7 million for fiscal 2004, fiscal 2003 and fiscal 2002, 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 an 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 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.

      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 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 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 their 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.

      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.

      Prior to February 1, 2002, 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 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.

      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 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.

      Considerable management judgment is necessary to estimate the fair value of our reporting units which also 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.

      In accordance with SFAS No. 144, which we 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.

Results of Operations and Financial Condition

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

      The table below presents our operating (loss) income by segment for fiscal 2004, fiscal 2003, and fiscal 2002.

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Fiscal 2004 Compared with Fiscal 2003

      Total Revenues. Total revenues increased 8.2% to $402.5 million for fiscal 2004 from $371.9 million for fiscal 2003.

      Direct Marketing Revenues. Direct marketing revenues decreased 1.6% to $154.3 million in fiscal 2004 from $156.8 million in fiscal 2003. The decrease in direct marketing revenues for fiscal 2004 versus fiscal 2003 was due primarily to 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 the number of catalog pages circulated to prospects outside our database and to non-buyers inside our database. This decrease was partially offset by the inclusion of a full year of direct marketing revenues generated from our dELiA*s brand which we acquired in September 2003. Our 2003 results only included 5 months of dELiA*s direct marketing revenue.

      Retail Stores Revenues. Retail stores revenues totaled $64.0 million for fiscal 2004 compared with $30.1 million for fiscal 2003. The retail stores revenue was generated from the 62 dELiA*s retail stores that were open for all or some portion of fiscal 2004. During fiscal 2004, we closed 7 of these retail stores. As of January 31, 2005, we operated 55 dELiA*s retail stores. Our retail stores were acquired on September 4, 2003 in connection with the dELiA*s acquisition, therefore, our total retail store revenue for fiscal 2003 reflects approximately 5 months of retail store revenues, while our total retail store revenue for fiscal 2004 reflects a full 12 months.

      Sponsorship and Other Activities Revenues. Sponsorship and other activities revenues decreased to $184.3 million in fiscal 2004 from $185.0 million in fiscal 2003. The decrease in sponsorship and other revenues in fiscal 2004 as compared with fiscal 2003 is primarily due to a decrease in revenue generated from our event marketing and promotional programs and newspaper advertising placement business. This decrease was partially offset by the sponsorship and other revenues generated by InSite, which we acquired in March 2004, and the inclusion of a full year’s revenue from OCM, which we had acquired in May 2003.

      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 10.0% in fiscal 2004 to $208.3 million from $189.4 million in fiscal 2003. The increase in cost of revenues was due primarily to a full year’s cost of revenues for 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, CCS and Dan’s Comp direct marketing brands.

      Our gross profit as a percentage of total revenues decreased to 48.2% in fiscal 2004 from 49.1% in fiscal 2003. This decrease was due primarily to the lower gross margin profile of our retail revenues and the inclusion of a full year of retail revenues in fiscal 2004. In addition, gross margins within our sponsorship business units declined due to more competitive market conditions in fiscal 2004, which required us to reduce our margins to win sponsorship business contracts.

      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 6.7% to $155.5 million for fiscal 2004 from $145.7 million for fiscal 2003 primarily due to the inclusion of a full year of dELiA*s selling and marketing expenses (acquired in September 2003) and the inclusion of a full year of OCM’s selling and marketing expenses

(acquired in May 2003), partially offset by decreases resulting from reduced catalog circulation and lower fulfillment costs in our direct marketing segment.

      As a percentage of total revenues, our selling and marketing expenses decreased to 38.6% for fiscal 2004 from 39.2% for fiscal 2003. Fulfillment expenses, including credit card processing charges, decreased 19.5% to $21.2 million for fiscal 2004 from $26.3 million for fiscal 2003 primarily due to the efficiencies that resulted from transferring all of our fulfillment operations for our Alloy and CCS units to our dELiA*s in-house fulfillment 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 to $45.7 million in fiscal 2004 from $34.0 million in fiscal 2003. The increase in general and administrative expenses was primarily due to the addition of a full year of dELiA*s general and administrative expenses.

      Amortization of Intangible Assets. Amortization of intangible assets was approximately $6.3 million for fiscal 2004 as compared with $7.9 million for fiscal 2003. 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 decrease in intangible asset amortization is due to an impairment of long-lived assets in fiscal 2003, which in turn decreased amortization expense in fiscal 2004.

      Goodwill and Other Indefinite-Lived Intangible Asset Impairment. Operating profits and cash flows were lower than expected in fiscal 2004 for the sponsorship and other reporting unit and when considered together with market information publicly available, the valuation of the sponsorship and other reporting unit was unable to support the goodwill balance in the reporting unit. As a result, during the fourth quarter of fiscal 2004, a goodwill impairment charge of $71.1 million was recognized since the carrying amount of the reporting unit’s goodwill exceeded the implied fair value of the goodwill by this amount. Also, during the fourth quarter of fiscal 2004, impairment charges for trademarks of approximately $181,000 and $860,000 were recognized in the direct marketing segment and the sponsorship and other segment, respectively. Estimates of trademark fair values were determined using the Income Approach.

      Impairment of Other Long-Lived Assets. We performed an impairment analysis of long-lived assets in the sponsorship and other segment during the fourth quarter of fiscal 2004. Since the carrying amounts of certain groups of assets exceeded their estimated future cash flows, an impairment charge of approximately $942,000 was recognized in the sponsorship and other segment. Alloy determined that the carrying amounts of non-competition agreements totaling $667,000 were impaired. In addition, an impairment charge of $275,000 related to property and equipment was recorded.

      Restructuring Charges. Restructuring charges totaled approximately $347,000 for fiscal 2004 as compared with $730,000 for fiscal 2003. During fiscal 2004, we made the decision to relocate the operations of our MPM business from Santa Barbara, California to our principal office in New York, New York and terminated several MPM employees. As a result, we recognized a restructuring charge in the sponsorship and other segment comprised of severance costs and the write-off of leasehold improvements. The MPM operations were completely relocated to our New York offices during the third quarter of fiscal 2004. No additional restructuring charges associated with the MPM relocation are expected to be recognized.

      Total Loss from Operations. Our loss from operations was $86.7 million for fiscal 2004 as compared with $67.7 million for fiscal 2003. The increase in operating loss is primarily due to the intangible asset impairment issues discussed previously, the loss from the dELiA*s retail operations over the course of a full year, and increased corporate expenses.

      Income (Loss) from Direct Marketing Operations. Our income from direct marketing operations was $8.2 million for fiscal 2004 while our loss from direct marketing operations was $63.3 million for fiscal 2003. The transition from direct marketing operating loss to direct marketing operating income is primarily a result of the intangible asset issues recorded in fiscal 2003 and the improvement in efficiencies noted previously.

      Loss from Retail Stores Operations. Our loss from retail stores operations was $6.7 million in fiscal 2004 while our loss from retail stores operations was $2.6 million in fiscal 2003. Our fiscal 2004 loss from retail store operations reflects a full year of activity, while our fiscal 2003 loss reflects approximately four months of operations as we acquired dELiA*s in September 2003.

      Income (Loss) from Sponsorship and Other Activities Operations. Our loss from sponsorship and other operations was $53.8 million for fiscal 2004 while our income from sponsorship and other operations was $25.3 million for fiscal 2003. The transition from income to loss from sponsorship and other operations is primarily a result of the goodwill impairment of $71.1 million recorded in fiscal 2004 and a decrease in revenue generated from our event marketing and promotional programs and newspaper advertising placement business. This decrease was partially offset by the sponsorship and other revenues generated by InSite, which we acquired in March 2004 and contributed $5.1 million in revenue, and OCM which we acquired in May 2003.

      In fiscal 2004, we generated interest income of $370,000 and had interest expense of $4.9 million. In fiscal 2003, we generated interest income of $687,000 and had $2.7 million of interest expense, primarily related to the issuance in 2003 of our 5.375% Convertible Senior Debentures due August 1, 2023. The decrease in interest income resulted primarily from lower cash and cash equivalents and available-for-sale marketable securities balances during fiscal 2004 and the increase in interest expense, resulted primarily from a full year of interest expense associated with the Convertible Senior Debt.

      Net realized losses on the sales of marketable securities were approximately $5,000 in fiscal 2004. In addition, in fiscal 2004, we wrote off a $750,000 minority investment in a private company that was having difficulty funding its operations. In fiscal 2003, net realized gains on the sales of marketable securities were approximately $66,000. In addition, in fiscal 2003, we wrote off $313,000 of minority investments in private companies that either declared bankruptcy or ceased operations.

      In fiscal 2004, we recorded an income tax expense of $158,000 due to state income taxes. 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. See Note 14 of the accompanying financial statements for additional information.

Fiscal 2003 Compared with Fiscal 2002

      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 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:

      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.

      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.

      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:

      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.

      As a percentage of net direct marketing revenues, fulfillment expenses decreased to 16.8% 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:

      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.

      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.

      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 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. 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 planned 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, 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 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.

      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.

      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 was 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.

      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. 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.

      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.

      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.

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 with the exception of fiscal 2002 and fiscal 2003. At January 31, 2005, we had approximately $31.5 million of unrestricted cash, cash equivalents and short-term investments. Our principal commitments at January 31, 2005 consisted of the Debentures, Redeemable Convertible Preferred Stock, accounts payable, bank loans, accrued expenses and obligations under operating and capital leases.

      We have entered into a letter of agreement with our largest shareholder, MLF Investments LLC (which is controlled by one of our directors), whereby MLF Investments has agreed to backstop a contemplated $20 million rights offering of shares of common stock of the merchandise business at a specified exercise price. By agreeing to backstop this proposed offering, MLF Investments has committed to purchasing the unsubscribed portion of such shares. The letter agreement contemplates an exercise price that would be equivalent to a $175 million pre-money valuation on the merchandise business. As we pursue strategic alternatives for positioning and financing the merchandise business, we believe that the arrangement we have made with MLF Investments presents an option. The Company is currently analyzing a number of strategic alternatives for its merchandising business. No decision has yet been made by the Board to proceed with either the separation of the merchandise business or the rights offering, and no determination has yet been made about possible distribution ratios for the potential separation or subscription ratios for the possible rights offering. In the meantime, the Company has decided to redeem its Series B Preferred Stock in exchange for Alloy Common Stock to devote corporate capital to fund retail expansion and other operational requirements.

      Net cash used in operating activities was $9.5 million in fiscal 2004 compared with net cash provided by operating activities of $12.0 million in fiscal 2003. This resulted from a decline in sponsorship and other segment financial performance, the addition of dELiA*s unprofitable retail stores, and increased corporate expenses. In addition, accounts receivable increased $7.7 million as compared to the prior year. Such increase is primarily from our MPM business as a result of its relocation. We expect the increase in MPM to be temporary as we work through the transition issues.

      Cash provided by investing activities was $7.7 million in fiscal 2004 consisting primarily of $21.3 million of proceeds form the maturity of marketable securities offset by $8.2 million to acquire businesses and $5.5 million for capital expenditures, net of disposals. Cash used in investing activities was $72.0 million in fiscal 2003 primarily related to $66.7 million to acquire businesses and $3.8 million for capital expenditures.

      With respect to capital expenditures and retail store expansion opportunities currently being considered, we currently estimate approximately $6 million in such expenditures during 2005, and an additional $1-2 million of additional inventory requirements. In total, we expect ten additional retail stores.

      Net cash used in financing activities was $358,000 in fiscal 2004 due primarily to related payments on a mortgage loan, capital lease obligations and treasury share purchases. 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.

      We expect our liquidity position to meet our anticipated cash needs for working capital and capital expenditures for at least the next 24 months. 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, 2005, 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, 2005 (in thousands):

      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.

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.

Effect of New Accounting Standards

      We have described the impact anticipated from the adoption of certain new accounting pronouncements effective in fiscal 2004 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 Annual Report on Form 10-K expressing our expectations and beliefs regarding our future results or performance are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve a number of substantial risks and uncertainties. When used in this Annual Report on Form 10-K, the words “anticipate,” “may,” “could,” “plan,” “believe,” “estimate,” “expect” and “intend” and similar expressions are intended to identify such forward-looking statements.

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

      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.

      As of the end of fiscal 2004, we held a portfolio of $6.3 million in fixed income marketable securities for which, due to the conservative nature and relatively short duration of our investments, interest rate risk is mitigated. We do not own any derivative financial instruments in our portfolio. 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.

      The financial statements, financial statement schedule and Notes to the consolidated financial statements of Alloy, Inc. and subsidiaries are annexed to this Annual Report on Form 10-K as pages F-2 through F-45 and page S-1. An index of such materials appears on page F-1.

      On May 28, 2004, the Audit Committee of our Board of Directors (the “Board”) dismissed KPMG LLP (“KPMG”) as our independent auditors. The Audit Committee made the decision to engage BDO Seidman, LLP (“BDO”) as our independent auditors for the fiscal year ended January 31, 2005, effective as of May 28, 2004. KPMG previously audited our consolidated financial statements for the fiscal years ended January 31, 2004 and 2003. The report of KPMG on our consolidated financial statements for the fiscal years ended January 31, 2004 and 2003 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. 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, 2005, 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.

      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, 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.

      With the assistance of external advisors, the Company has undertaken a significant effort to document, remediate, implement and test internal controls over financial reporting and other areas during fiscal 2004. These efforts combined with certain changes in personnel have worked in concert to improve the Company’s controls. The financial closing has received significant emphasis as part of the internal work noted above. Among the controls in place are timely reviews and approvals. In addition to changing and adding personnel, new controls have been implemented, including but not limited to, the identification and communication of triggering events related to SFAS 142 and 144 and a review process of the SFAS 142 and 144 calculations.

      Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Annual Report on Form 10-K. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, January 31, 2005, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting information required to be disclosed by us in the reports we file or submit under the Exchange Act within the time periods specified in the SEC’s rules and forms.

      See Item 8.

      See Item 8.

      There were no changes in our internal control over financial reporting that occurred during the quarter and year ended January 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

      As set forth in Exhibit 10.34 to this Annual Report on Form 10-K, our Board of Directors has set the compensation to be paid to the non-employee members of our Board for the fiscal year ending January 31, 2006. As set forth in Exhibit 10.35 to this Annual Report on Form 10-K, the Compensation Committee of the Board of Directors has established the compensation for certain named executive officers during the fiscal year ending January 31, 2006, and has determined the bonuses to be paid to certain named executive officers for services rendered during the fiscal year ended January 31, 2005, which decision was approved by the Board of Directors.

PART III

      The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Information About Directors and Executive Officers” in our definitive Proxy Statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of our fiscal year ended January 31, 2005.

      The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Executive Compensation” in our definitive proxy statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of our fiscal year ended January 31, 2005, except that the sections in the definitive proxy statement entitled “Report of the Compensation Committee on Executive Compensation,” “Report of the Audit Committee” and the “Performance Graph” shall not be deemed incorporated herein by reference.

      The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Information About Alloy Security Ownership” in our definitive proxy statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of our fiscal year ended January 31, 2005.

      The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Certain Relationships and Related Party Transactions” in our definitive proxy statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of our fiscal year ended January 31, 2005.

      The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Principal Accountant Fees and Services” in our definitive proxy statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of our fiscal year ended January 31, 2005.

PART IV

      FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

      (1) Consolidated Financial Statements.

      The financial statements required by this item are submitted in a separate section of this Annual Report on Form 10-K. See “Index to Financial Statements and Schedule” on page F-1 of this Annual Report on Form 10-K.

      (2) Financial Statement Schedules.

      The Schedule required by this item is submitted in a separate section of this Annual Report on Form 10-K. See “Index to Financial Statements and Schedule” on page F-1 of this Annual Report on Form 10-K.

      (3) Exhibits.

      The list of exhibits required by this item is submitted in a separate section of this Annual Report on Form 10-K. See the “Exhibit Index” beginning on page 41 of this Annual Report on Form 10-K.

SIGNATURES

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

Date: April 18, 2005

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

EXHIBIT INDEX

ALLOY, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

      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.

Management’s Report on Internal Control Over Financial Reporting

      The management of Alloy, Inc. (“Alloy” or “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Alloy’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Alloy management assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2005. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on management’s assessment it believes that, as of January 31, 2005, the Company’s internal control over financial reporting is effective based on those criteria. Alloy’s independent registered public accounting firm has issued an audit report on our assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2005. This report is included herein.

April 14, 2005

Report of Independent Registered Public Accounting Firm on

Internal Control over Financial Reporting

Board of Directors and Stockholders

Alloy, Inc.

New York, New York

      We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, included in Item 9A of the Annual Report on Form 10-K, that Alloy, Inc and its subsidiaries (“the Company”) maintained effective internal control over financial reporting as of January 31, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

      In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of January 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Alloy, Inc. and its subsidiaries as of January 31, 2005, and the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for the year then ended and our report dated April 15, 2005 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

New York, New York

April 15, 2005

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Alloy, Inc.

New York, New York

      We have audited the accompanying consolidated balance sheet of Alloy, Inc. and its subsidiaries, (“the Company”), as of January 31, 2005, and the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders’ equity and cash flows for the year then ended. We have also audited the consolidated financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

      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 consolidated financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, of the consolidated financial statements and schedule. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alloy, Inc. and its subsidiaries at January 31, 2005 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, 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.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of January 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by The Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 15, 2005 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

New York, New York

April 15, 2005

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 the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders’ equity and cash flows for each of the years in the two-year period 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 audit.

      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 audit provides 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 the results of their operations and their cash flows for each of the years in the two-year period 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.

/s/ KPMG LLP

New York, New York

May 14, 2004

ALLOY, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying Notes to consolidated financial statements.

ALLOY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

See accompanying Notes to consolidated financial statements.

ALLOY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Year Ended January 31, 2005

(Amounts in thousands, except share data)