When’s a business not a business?

images1.jpegAnyone still remember Channel One, the TV channel that is pumped into 11,000 local schools and included ten minutes of news and two minutes of commercials in exchange for free equipment? In April, Primedia (PRM) sold the channel to Alloy Inc. (ALOY), the former clothing retailer that’s now a marketing company that focuses on the teen and college market, for an undisclosed price.

There have never been good numbers available on Channel One. Not when it was a private company and not when it was owned by Primedia (though the Wikipedia item says that revenue was $35 million in 2005). In the 10-Q that Primedia filed back in May, it said that revenues for the education segment, which included Channel One and some other stuff were $10.5 million and that the operating loss was $3.5 million, so either things were dropping pretty dramatically or the $35 million number wasn’t quite accurate.

No matter what the real numbers are, it’s hard to argue that Channel One isn’t a business. A weird business, but a business all the same. Which brings us to today and this equally weird amended 8-K that Alloy filed earlier this morning. In a nutshell, Alloy has been arguing (with the fine folks at the SEC) that Channel One isn’t really a business, so it doesn’t have to provide financial statements. In today’s filing, the company says that “no audited financial statements for the acquired assets of Channel One had been prepared or were available, and that it would be impossible for Alloy to provide those financial statements.” Alloy adds that it has devoted “substantial efforts” to obtain the financial statements and plans to ask for another waiver from SEC rules.

The company did disclose that Primedia paid Alloy $8.6 million ($5 million in cash) to take Channel One off its hands, a number that Alloy said was based on what Primedia would have had to spend to wind the operations down. So, in the end, Alloy may have thought they were getting a $5 million gift and some assets to boot, but it sounds like it’s turning into a giant headache and an expensive one, too.