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**UNITED  STATES****SECURITIES AND EXCHANGE COMMISSION****Washington,  DC 20549**

**FORM 10-K**

| (Mark One) |                                                                                              |
|------------|---------------------------------------------------------------------------------------------------|
|       |                                                                                              |
|            | **ANNUAL REPORT PURSUANT      TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|       |                                                                                              |
|       | **For      the fiscal year ended January 31, 2006**                                               |
|       |                                                                                              |
|       | **OR**                                                                                            |
|       |                                                                                              |
|            | **TRANSITION REPORT      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

**For the  transition period from  ___________________  to ___________________**

Commission  File Number **0-12188**

**DEB  SHOPS, INC.**(Exact name of registrant as specified in its charter)  

| **Pennsylvania**                                           |   | **23-1913593**                         |
|------------------------------------------------------------|--------|----------------------------------------|
| (State      of Incorporation)                         |   | (IRS Employer      Identification No.) |
|                                                       |   |                                   |
|                                                       |   |                                   |
| **9401      Blue Grass Road, Philadelphia, PA 19114**      |
| (Address      of principal executive offices and zip code) |
|                                                       |   |                                   |

**(215)  676-6000**(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 $.01 per share. 

Indicate by check mark whether  the registrant is a well-known seasoned issuer, as defined in Rule 405 of the  Securities Act:

| Yes   | No  |
|-----------------|----------|
|            |     |

Indicate by check mark if  the registrant is not required to file reports pursuant to Section 13 or Section  15(d) of the Act:

| Yes   | No  |
|-----------------|----------|
|            |     |

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   | No  |
|-----------------|----------|
|            |     |

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

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

Indicate by check mark whether  the registrant is a shell company (as defined in Rule 12b-2 of the Exchange  Act).

| Yes   | No  |
|-----------------|----------|
|            |     |

As of July 29, 2005 (the last  business day of the registrant’s most recently completed second fiscal  quarter), the aggregate market value of the registrant’s Common Stock,  par value $.01 per share, held by non-affiliates was approximately $122,576,000.  

As of March 31, 2006, 14,322,808  shares of the registrant’s Common Stock, par value $.01 per share,  were outstanding.

**DOCUMENTS  INCORPORATED BY REFERENCE**

 Registrant’s Definitive  Proxy Statement to be filed within 120 days after the end of the fiscal year  in connection with the Annual Meeting to be held on May 17, 2006 - incorporated  in Part III.

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**Forward-Looking Statements**

Deb Shops, Inc. (hereinafter    referred to as “DEB”, “we”, “our” or the “Company”)    has made in this report, and from time to time may otherwise make, “forward-looking    statements” (as that term is defined under federal securities laws) concerning    the Company’s future operations, performance, profitability, revenues,    expenses, earnings and financial condition. This report includes, in particular,    forward-looking statements regarding expectations of future performance, store    openings and closings and other matters. Such forward-looking statements are    subject to various risks and uncertainties. Actual results could differ materially    from those currently anticipated due to a number of factors. Such factors    may include, but are not limited to, our ability to improve or maintain sales    and margins, respond to changes in fashion, find suitable retail locations    and attract and retain key management personnel. Such factors may also include    other risks and uncertainties detailed in our other filings with the Securities    and Exchange Commission (“SEC”). We assume no obligation to update    or revise our forward-looking statements even if experience or future changes    make it clear that any projected results expressed or implied therein will    not be realized. 

**PART I**

**Item 1. Business**

**General**

We operate 327 women’s    and men’s specialty apparel retail stores in regional malls and strip    shopping centers principally located in the East and Midwest regions of the    United States. We operate 318 stores under the name “DEB” which    offer moderately priced, fashionable, coordinated women’s sportswear,    dresses, coats, lingerie, accessories and shoes for junior and plus sizes.    DEB merchandise consists of clothing and accessories appealing primarily to    the fashion-conscious junior and plus-sized female consumers between the ages    of 13 and 25. In addition, we operate three outlet stores under the name “CSO.”    The outlet stores offer the same merchandise as DEB at reduced prices and    serve as clearance stores for slow-moving inventory. One hundred and sixty-three    of our stores contain plus-size departments. We also operate six apparel retail    stores under the name “Tops ‘N Bottoms.” The Tops ‘N Bottoms    stores sell moderately priced men’s and women’s apparel. Thirteen    of the DEB stores contain Tops ‘N Bottoms departments. Store information    is as of January 31, 2006 unless otherwise indicated. 

**Merchandising**

We specialize in junior-sized    merchandise and offer an extensive selection of colors and styles. The merchandise    is attractively presented in groups coordinated by color and style to assist    customers in locating items of their choice and creating outfits of their    own.

The merchandise offered    in our plus-sized departments caters to the plus-size customer between the    ages of 13 and 25. The merchandise is young looking and the fit is adjusted    to this customer. We believe that our prices are affordable and very competitive.

Tops ‘N Bottoms caters    primarily to young men and junior-sized women. Much of the merchandise is    brand named and unisex.

We purchase merchandise    in volume, sell at popular prices, and have a policy of early markdowns of    slow-moving inventory. A special effort is made to select and present coordinated    outfits on a rotating basis and featured merchandise is changed approximately    twice a week. 

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**Marketing**

We believe that many of    the malls in which we operate our stores are destination locations for our    customers. We also believe that our target customer visits the malls in which    we operate on a regular basis and that in addition to shopping in our stores,    they also visit other teen apparel retailers. As a result, we believe the    most effective form of marketing is through visual merchandising within our    stores. Our visual merchandising is designed to create an image of depth,    with product offerings using coordinated and accessorized fashion displays.    Our displays also present layered items to encourage multiple unit sales.

In connection with the opening    of a new or newly remodeled store, we frequently use radio advertisements    to develop customer awareness of the new or remodeled location.

Our website, www.debshops.com,    is designed to drive additional store traffic, showing up-to-date seasonal    fashions for our junior and plus-sized customer, some of which can be purchased    on-line. It also serves as a marketing channel that helps to build brand awareness    and contains a store locator. Our gift cards can also be purchased on our    website.

**Management Information  Systems**

A computerized point-of-sale    merchandise data system provides detailed daily information regarding sales    and inventory levels by style, color, class and department, thereby permitting    our merchandising team to analyze market trends and changing store needs.    Since merchandising statistics are available on a daily basis, we can identify    slow-moving merchandise and respond to customer buying trends when making    repurchase decisions and markdown adjustments. This assists us in our effort    to maintain current and fresh merchandise in our stores.

We are in the process of    developing new point-of-sale software that is expected to provide enhancements    to our merchandising and financial control processes. It will also enable    us to migrate to newer hardware, thereby replacing older equipment. We currently    expect the migration to the new hardware and software to be completed during    our fiscal year ending January 31, 2008. 

**Seasonality**

We experience the normal    seasonal pattern of the retail apparel industry, with peak sales occurring    during the Christmas, Back-to-School and spring periods. To keep merchandise    fresh and fashionable, slow-moving merchandise is marked down throughout the    year. End-of-season sales are conducted twice per year (in the second and    fourth quarters), in keeping with our policy of carrying a minimal amount    of seasonal merchandise over from one merchandising season to another. Most    of our seasonal merchandise is liquidated through this process.

**Stores**

During the fiscal year ended    January 31, 2006 (“fiscal 2006”), we opened eight stores, closed    four stores and remodeled 12 existing locations. Seven of the new stores have    plus-size departments. We also added plus-size departments to seventeen existing    DEB stores, four of which resulted from conversion of Tops ‘N Bottoms    departments. We currently plan a net increase of 15 to 20 new stores in the    fiscal year ending January 31, 2007 (“fiscal 2007”), the majority    of which are expected to have plus-size departments. We also expect to remodel    10 to 15 locations. We are currently scheduled to close four stores in the    first half of fiscal 2007. We plan to continue to carefully evaluate the profitability    of individual stores and close those stores that we believe cannot meet a    level of profitability that we deem acceptable. 

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The following table shows    store openings and closings for the last five fiscal years:

|                                  | **Year Ended January 31,** |   |
|---------------------------------------|----------------------------|--------|
|                                  |                            |        |  |  |  |  |  |  |  |   |
|                                  | **2006**                   |   | **2005** |   | **2004** |   | **2003** |   | **2002** |   |
|                                  |                            |   |  |   |  |   |  |   |  |   |
| Open at beginning      of fiscal year | **323**                    |        | **332** |  | **327** |  | **309** |  | **291** |  |
| Opened during      fiscal year        | **8**                      |        | **8** |  | **13** |  | **23** |  | **23** |  |
| Closed      during fiscal year        | **(4**                     | **)**  | **(17** | **)** | **(8** | **)** | **(5** | **)** | **(5** | **)** |
|                                  |                            |        |  |  |  |  |  |  |  |  |
| Open at end      of fiscal year       | **327**                    |        | **323** |  | **332** |  | **327** |  | **309** |  |
|                                  |                            |        |  |  |  |  |  |  |  |  |

Our 327 stores are located    in 41 states, principally in the East and Midwest portions of the United States.    The following table lists the number of stores operating within each geographic    region of the country. 

|                           | **Number**         |   |
|---------------------------|--------------------|--------|
| **Region**                | **of      stores** |
|                           |                    |   |
| Midwest                   | 145                |   |
| East                      | 112                |   |
| West                      | 35                 |   |
| New England               | 24                 |   |
| South                     | 11                 |   |
|                      |                    |   |
|      Total | 327                |   |
|                      |                    |   |

 DEB stores, which average    5,900 square feet, are located primarily in enclosed regional malls and selected    strip shopping centers. DEB stores with Tops ‘N Bottoms or plus-sized    departments average 8,000 square feet and are located primarily in enclosed    regional malls. Tops ‘N Bottoms stores are all located in enclosed regional    malls and range in size from 2,400 to 3,400 square feet. New stores are opened    in existing malls, existing mall expansions, new malls and strip shopping    centers. Factors considered in opening new stores include the availability    of suitable locations and satisfactory lease terms, both of which are considered    essential to successful operations. Key considerations in selecting sites    for new stores include the geographic location of the center, the demographics    of the surrounding area, the principal specialty and “anchor” stores    within the center, expected customer traffic within the center, and the location    of our potential store within the center itself. 

 Stores are distinctively    designed for customer identification and are remodeled periodically as necessary.    The stores are open during mall operating hours, which are generally from    10:00 A.M. to 9:30 P.M., Monday through Saturday, and from Noon to 5:00 P.M.    on Sunday. 

 Payments for most of our    sales are made by cash or Visa, MasterCard, Discover or American Express credit    cards, with the balance made by check. For customer convenience, we provide    layaway plans. Our policy is to permit returns of merchandise for exchange    or full cash or credit refund, at the customer’s preference. 

 We purchase merchandise    from a number of suppliers, both domestic and foreign, and we are not materially    dependent on any one supplier. All merchandise is shipped directly from vendors    to our central distribution facility, where it is inspected before being shipped    to individual stores. We distribute our inventory by common carrier and leased    trucks. 

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 The responsibility for    managing our stores rests with the Director of Store Operations and a staff    of 41 employees consisting of an Assistant Director of Store Operations and    Regional and District Managers. A Regional Manager is responsible for an average    of six districts. A District Manager is responsible for an average of 10 stores,    each of which is staffed by a Store Manager and two Assistant Store Managers.    The District and Regional Managers visit the stores regularly to review merchandise    levels, content and presentation, staff training and other personnel issues,    store security and cleanliness and adherence to standard operating procedures.    

 The merchandising department    consists of 45 employees, including the Senior Vice President, Merchandising,    Merchandise Managers, Buyers and support staff. The department is responsible    for purchasing, pricing (including markdowns), inventory planning and allocating    merchandise among the stores. The merchandising department’s staff is    organized in the following categories: tops, bottoms, dresses, coats, lingerie,    hosiery, shoes and accessories. 

 At January 31, 2006, we    had approximately 3,500 employees, 56% of whom were employed on a part-time    basis. We have a collective bargaining agreement with the United Paperworkers    International Union, Philadelphia Local 286 (“UPIU”) that expires    on December 31, 2008. The UPIU represents approximately 90 of our warehouse    employees. We consider our employee relations to be good. 

**Competition**

 The retail sale of apparel    is an extremely competitive business with numerous individual and chain store    competitors, including specialty shops as well as regional and national department    store chains. Many of our competitors are considerably larger than we are    and have substantially greater financial and other resources. 

The primary elements of    competition are merchandise style, selection, quality, display and price,    as well as store location and design. We believe that our strategy of specializing    in the junior and plus-size sportswear market and our ability to effect volume    purchases are important elements in our operations. Brand name merchandise    is not a significant factor in our sales. 

**Available Information**

Our principal Internet address    is www.debshops.com.    We make available free of charge on www.debshops.com    our annual, quarterly, and current reports, and amendments to those reports,    including exhibits thereto, as soon as reasonably practicable after we electronically    file such material with, or furnish it to, the SEC. Our historical filings    can also be accessed directly from the SEC's website at www.sec.gov.    Our Audit and Nominating Committee charters, as well as our Code of Business    Conduct & Ethics, are also available on www.debshops.com.    

In addition, we will provide,    at no cost, paper or electronic copies of our reports and other filings made    with the SEC. Requests should be directed to: 

|   | Barry J. Susson, CPA,      Chief Financial Officer and Assistant Secretary |
|--------|----------------------------------------------------------------------------|
|   | Deb Shops, Inc.                                                            |
|   | 9401 Blue Grass Road                                                       |
|   | Philadelphia, PA 19114                                                     |

The information on our website    listed above is not, and should not be considered, part of this annual report    on Form 10-K, and is not incorporated by reference in this document.

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**Item 1A. Risk Factors**

 The following risk factors    should be read carefully in connection with evaluating our business and the    forward-looking information contained or incorporated by reference in this    report. See “Forward-Looking Statements” set forth above.

**We may not be able to  anticipate or react to changes in merchandise trends and consumer demands and  our failure to do so may lead to loss of sales and reduced profitability.**

Our success depends,      in large part, on our ability to anticipate and react to changes in merchandise      trends in a timely manner. Any delay or failure by us in identifying and      accurately    responding to changing merchandise trends and consumer demands could adversely      affect consumer acceptance of our product offerings, which could lead to      significant    markdowns and reduced sales and profitability. In addition, we make decisions      for a portion of our merchandise well in advance of each of the seasons      in    which such merchandise will be sold. Significant deviations from projected      demand for merchandise could have an adverse effect on our results of operations      and financial condition, either from lost sales due to insufficient inventory    or lower margins due to the need to mark down excess inventory. 

**We may not be able to  attract or retain a sufficient number of customers in an extremely competitive  retail business market, which would have an adverse effect on our business,  financial condition and results of operations.**

 The female teen specialty    apparel business is highly competitive. We compete against a large number    of multi-store specialty apparel companies as well as department store and    mass merchant operators, many of whom are larger and have more substantial    financial and operational resources. All of our existing locations face competition    from one or more of our competitors. This competitive marketplace may adversely    affect our future performance and we cannot be certain that we will be able    to compete effectively in the future. 

**If we are unable to  implement our growth strategy, our ability to increase our sales, profitability  and cash flow could be significantly impaired.**

An increase in our sales,    profitability and cash flow will depend on our ability to execute the following    components of our growth strategy: 

|   | • | Increase the number      of stores we operate;                                                                        |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                  |
|   | • | Increase the productivity      and profitability of our existing stores;                                              |
|   |    |                                                                                                                  |
|   | • | Increase the number      of plus-sized departments in existing stores;                                                |
|   |    |                                                                                                                  |
|   | • | Continue our program      of selectively remodeling existing stores; and                                              |
|   |    |                                                                                                                  |
|   | • | Continue to selectively      close those locations that we believe cannot become profitable ormaintain profitability. |

 Accomplishing our store    expansion goals will depend upon a number of factors, including locating suitable    sites, negotiating favorable lease terms and hiring and training qualified    personnel, particularly at the store management level.

 If we are unable to effectively    implement our growth strategy, our ability to increase our sales, profitability    and cash flow could be significantly impaired by, among other things:

|   | • | The costs of opening      and operating new stores may offset the increased sales generated by theadditional stores;                                                        |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                        |
|   | • | The opening of additional      stores in an existing market could reduce net sales from existingstores in that market;                                                      |
|   |    |                                                                                                                                                                        |
|   | • | The opening of stores      in new geographic markets may present competitive challenges that aredifferent than those we      face in our existing geographic markets; and   |
|   |    |                                                                                                                                                                        |
|   | • | The costs associated      with increasing the number of plus-sized departments in existing storesmay not be recouped by      increases in sales volumes in those locations. |

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**Our levels of sales  and earnings growth have fluctuated, and any decline in our future growth or  performance could have a material adverse effect on the market price of our  common stock.**

A variety of factors have    historically affected, and will continue to affect, our rate of growth and    performance. These factors include, among other things, customer trends and    preferences, competition, economic conditions, managing inventory effectively    and new store openings. There can be no assurance that we will achieve positive    levels of sales and earnings growth and any decline in our future growth or    performance could have a material adverse effect on the market price of our    common stock.

**Our business could be  significantly disrupted if we cannot retain or replace members of our management  team.**

Our success depends to a    significant extent both upon the continued services of our current executive    and senior management team, as well as our ability to attract and retain additional    qualified management personnel in the future. Our operations could be adversely    affected if, for any reason, one or more key executive officers ceased to    be active in our management. 

**We rely on foreign sources  of production.**

We purchase a significant    portion of our apparel directly in foreign markets and indirectly through    domestic vendors with foreign sources. We face a variety of risks generally    associated with doing business in foreign markets and importing merchandise    from abroad, including: 

|   | • | Political      instability;                                                 |
|--------|---------|-----------------------------------------------------------------------------|
|   |    |                                                                        |
|   | • | Increased      security requirements applicable to imported goods;          |
|   |    |                                                                        |
|   | • | Imposition      or increases of duties, taxes and other charges on imports; |
|   |    |                                                                        |
|   | • | Imposition      of quotas on imported merchandise;                          |
|   |    |                                                                        |
|   | • | Currency      and exchange risks;                                           |
|   |    |                                                                        |
|   | • | Delays      in shipping; and                                                |
|   |    |                                                                        |
|   | • | Increased      costs of transportation.                                     |

New initiatives may be proposed    that may have an impact on the trading status of certain countries and may    include retaliatory duties or other trade sanctions that, if enacted, could    increase the cost of products purchased from suppliers in such countries or    restrict the importation of products from such countries. The future performance    of our business will depend on foreign suppliers and may be adversely affected    by the factors listed above, all of which are beyond our control. This may    result in our inability to obtain sufficient quantities of merchandise or    increase our cost, thereby negatively impacting sales, gross profit and net    earnings. 

**We depend on mall and  strip shopping center customer traffic.**

Our sales are dependent    in part on a high volume of mall and strip shopping center customer traffic.    Mall and strip shopping center customer traffic may be adversely affected    by, among other things, economic downturns, gasoline prices, the closing of    anchor stores or changes in customer shopping preferences. A decline in the    popularity of mall and strip shopping centers among our target customers could    have a material adverse effect on customer traffic and reduce our sales and    net earnings. 

**A weak fourth quarter  would have a material adverse effect on our operating results for the year.**

Our business is affected       by the seasonality pattern that is common to most retailers. Due to the      importance    of our peak selling season, which includes the Christmas holiday, the fourth       quarter has historically contributed, and is expected to continue to contribute,    a significant portion of our net income for the entire year. In anticipation       of increased sales activity during the fourth quarter, we incur significant    additional costs both prior to and during the fourth quarter. Those costs       include, among other things, the acquisition of inventory and the hiring      of    seasonal employees. Any factors negatively affecting our sales during this       period of the year, including adverse weather or unfavorable economic      conditions,    could have a material adverse effect on our results of operations for the       entire year. 

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**We depend on a single  distribution center, a disruption in the operation of which could have a material  adverse effect on our business, financial condition and results of operations.**

We process 100% of the merchandise    sold in our stores through our automated distribution center in Philadelphia,    Pennsylvania. Our distribution operations are vulnerable to damage or interruption    from events such as fire, flood, power interruption, technological difficulties    and similar events. An extended disruption in our ability to process merchandise    through our distribution center could have a material adverse effect on our    business, financial condition and results of operations. 

**Our management information  systems may prove inadequate.**

We depend heavily on our    management information systems for many aspects of our business. A significant    portion of our key software applications have been developed internally. Additionally,    we operate our management information systems with an informal business continuity    plan. Our business could be materially adversely affected if our management    information systems are disrupted for an extended period of time.

**Fluctuations in the      cost of fuel oil could impact our earnings and margins.**

Prices for oil have fluctuated       dramatically in the past and have risen substantially in fiscal 2006.      These    fluctuations impact our distribution costs, transportation costs for our      field  management and utility costs for our stores, corporate office and      distribution    center. Continuing fluctuation of the cost of fuel oil could impact our earnings      and margins.    

**Weather conditions could  adversely affect our results of operations.**

Because a significant portion    of our business is apparel and subject to weather conditions in our markets,    our operating results may be unexpectedly and adversely affected by inclement    weather. Extended periods of unseasonable temperatures in our markets, potentially    during our peak seasons, could render a portion of our inventory incompatible    with those unseasonable conditions. Reduced sales from extreme or prolonged    unseasonable weather conditions could adversely affect our business. Additionally,    frequent or unusually heavy snow, ice or rain storms might make it difficult    for our customers to travel to our stores and thereby reduce our sales and    profitability.

**Labor conditions could  adversely affect our results of operations.**

Our performance is dependent    on attracting and retaining a large and growing number of quality sales associates.    Many of those sales associates are in entry level or part time positions with    historically high rates of turnover. Our ability to meet our labor needs while    controlling costs is subject to external factors such as unemployment levels,    prevailing wage rates, minimum wage legislation and changing demographics.    Changes that adversely impact our ability to attract and retain quality sales    associates could adversely affect our performance. 

**Our principal shareholders  may effectively exercise control over matters requiring shareholder approval.**

Marvin Rounick and Warren    Weiner, together with their affiliates, own, directly or indirectly, a substantial    amount of our common stock. To the extent they and their affiliates vote their    shares in the same manner, their combined stock ownership may effectively    give them power to elect all of the directors and control the management,    operations and affairs of Deb Shops, Inc. Their ownership may discourage someone    from making a significant equity investment in Deb Shops, Inc. even if we    needed the investment to operate our business. The size of their combined    stock holdings could be a significant factor in delaying or preventing a change    of control transaction that other shareholders may deem to be in their best    interests, such as a transaction in which the other shareholders would receive    a premium for their shares over their current trading prices. 

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**Terrorist attacks and  threats or actual war may impact all aspects of our operations, revenues, costs  and stock price in unpredictable ways.**

Terrorist attacks in the    United States, as well as future events occurring in response or in connection    with them, may impact our operations, including among other things, causing    delays or losses in the delivery of merchandise to us and decreased sales.    More generally, any of these events could cause consumer confidence and spending    to decrease or result in increased volatility in the United States and worldwide    financial markets and economy. This also could result in a deepening of any    economic recession in the United States or abroad. Any of these occurrences    could have a significant impact on our operating results, revenues and costs    and may result in the volatility of the market price for our common stock    and on the future price of our common stock. 

**Item 1B. Unresolved  Staff Comments**

None. 

**Item 2. Properties**

We lease all of our stores.    The internal layout and fixtures of each store are designed and constructed    under contracts with third parties.

Under most leases, we are    required to pay, in addition to fixed minimum rental payments, charges for    real estate taxes, common area maintenance fees, utility charges, insurance    premiums, mall association charges and contingent rentals based upon a percentage    of sales in excess of specified amounts. Certain leases provide for predetermined    escalations in future minimum annual rentals.

The following table shows    the current expiration dates of executed store leases, for stores in operation    as of January 31, 2006. In many cases, we have renewal options. 

|                     |   | **Number of** |   |
|--------------------------|--------|---------------|--------|
|                     |   | **Leases**    |   |
| **Calendar      Years**  |   | **Expiring**  |   |
|                          |   |               |   |
| 2006      - 2007         |   | 95            |   |
| 2008 - 2009              |   | 72            |   |
| 2010      - 2011         |   | 49            |   |
| 2012 - 2013              |   | 45            |   |
| 2014      - 2015         |   | 36            |   |
| 2016 - 2017              |   | 24            |   |
| 2018      and thereafter |   | 6             |   |
|                     |   |               |   |
| Total                    |   | 327           |   |
|                     |   |               |   |

We lease our warehouse,    distribution and office space, aggregating 280,000 square feet, pursuant to    a lease that expires in 2007. This facility is a modern, one-story industrial    building situated on approximately 20 acres in the northeast section of Philadelphia,    Pennsylvania. See Item 13. Certain Relationships and Related Transactions.    

With respect to the geographic    locations of our stores, see Item 1. Business – Stores. 

**Item 3. Legal Proceedings**

We are subject to legal    proceedings, employment issues and claims that arise in the ordinary course    of our business. Management, after consultation with outside legal counsel,    does not believe that the ultimate disposition of such proceedings will have    a material adverse effect on our consolidated financial position or results    of operations. 

**Item 4. Submission  of Matters to a Vote of Security Holders**

None. 

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**Executive Officers of  the Registrant**

 Pursuant to General Instruction    G(3) of Form 10-K, the following list is included as an unnumbered Item in    Part I of this Report in lieu of being included in the Definitive Proxy Statement    for the Annual Meeting of Shareholders to be held on May 17, 2006. 

Our executive officers,    each of whom serves at the discretion of the Board of Directors, are as follows:    

| **Name**                  |   | **Age** |   | **Position      with Company**                                   |   | **Officer Beginning** |
|---------------------------|--------|---------|--------|------------------------------------------------------------------|--------|-----------------------|
|                           |   |         |   |                                                                  |   |                       |
| Marvin      Rounick       |   | 65      |   | Director,      President and Chief Executive Officer             |   | 1973                  |
| Warren Weiner             |   | 62      |   | Director,      Executive Vice President, Secretary and Treasurer |   | 1973                  |
| Allan Laufgraben          |   | 67      |   | Senior Vice      President, Merchandising                        |   | 1995                  |
| Barry J.      Susson, CPA |   | 43      |   | Chief Financial      Officer and Assistant Secretary             |   | 2003                  |
| Stanley A.      Uhr, Esq. |   | 60      |   | Vice President      and Corporate Counsel                        |   | 1988                  |
| Stephen P.      Smith     |   | 46      |   | Vice President,      Information Systems                         |   | 1998                  |
| John DeAngelis            |   | 37      |   | Vice President,      Real Estate                                 |   | 2005                  |
| Joan M. Nolan             |   | 53      |   | Controller                                                       |   | 1998                  |

 Marvin Rounick has been    employed by the Company since 1961. Since 1979, he has served as President    and Chief Executive Officer.

 Warren Weiner was employed    by the Company from 1965 until 1975. He rejoined the Company in January 1982,    as Executive Vice President, Secretary and Treasurer. 

 Allan Laufgraben has been    employed by the Company since December 1995, as Senior Vice President, Merchandising.

Barry J. Susson, CPA, has    been employed by the Company since February 2003, as Chief Financial Officer.    He was appointed Assistant Secretary in May 2005. From September 2000 to January    2003, he was Vice President of Finance of Forman Mills, Inc.; from October    1998 to August 2000, he was Executive Vice President and Chief Financial Officer    of Dollar Express, Inc. 

 Stanley A. Uhr, Esq.,    has been employed by the Company since 1987. From March 1988 until October    2005, he served as Vice President, Real Estate and Corporate Counsel. Since    November 2005, he has served as Vice President and Corporate Counsel. 

 Stephen P. Smith has been    employed by the Company since 1985. Since May 1998, he has served as Vice    President, Information Systems. 

 John DeAngelis has been    employed by the Company since November 2005, as Vice President, Real Estate.    From June 2004 to October 2005, he served as Assistant Vice President, Real    Estate of The Dress Barn, Inc.; from June 1999 until May 2004, he served as    Director of Real Estate for The Dress Barn, Inc.

Joan M. Nolan has been    employed by the Company since November 1998, as Controller. 

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**PART II**

**Item  5**. **Market for the Registrant’s Common Equity, Related Stockholder Matters  and Issuer Purchases of Equity Securities**

**Market Information**

 Our Common Stock is traded    on the NASDAQ Global Market under the symbol: DEBS. 

 The following table sets    forth quarterly high and low sales prices for the two most recent fiscal years:    

| **2006**       |      | **High**  |   |      | **Low**         |   |
|----------------|-----------|-----------|--------|-----------|-----------------|--------|
|                |           |      |        |      |
| First Quarter  | **$** | **30.08** |   | **$** |  **23.49** |   |
| Second Quarter | **$** | **30.85** |   | **$** |  **23.91** |   |
| Third Quarter  | **$** | **25.29** |   | **$** |  **21.30** |   |
| Fourth Quarter | $     | **32.39** |   | **$** |  **25.28** |   |
|           |           |      |        |           |            |   |
|           |           |      |        |           |            |   |
| **2005**       |           | **High**  |   |      | **Low**         |   |
|                |           |      |        |      |
| First Quarter  | **$** | **26.85** |   | **$** |  **20.20** |   |
| Second Quarter | **$** | **26.00** |   | **$** |  **22.27** |   |
| Third Quarter  | **$** | **25.00** |   | **$** |  **22.05** |   |
| Fourth Quarter | $     | **27.52** |   | **$** |  **23.76** |   |

**Holders**

 As of March 31, 2006,    there were 187 record holders and approximately 2,269 beneficial holders of    our Common Stock. 

**Dividends**

We paid regular quarterly    dividends for each of the two most recent fiscal years. The per-share amount    of the quarterly dividends paid in each of the four quarters of fiscal 2005    and fiscal 2006 was $0.125. We also paid special dividends of $0.40    per share in the third quarter of fiscal 2005 and $6.00 per share in the    third quarter of fiscal 2006. We currently intend to follow a policy of regular    quarterly dividends, subject to our earnings, capital requirements and our    operating and financial condition, among other factors. 

**Issuer Purchases of  Equity Securities**

 There were no repurchases    of our equity securities during the fourth quarter of fiscal 2006. 

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**Item 6. Selected Financial  Data**

The following selected    financial data is derived from our consolidated financial statements. The    data should be read in conjunction with Management’s Discussion and Analysis    of Financial Condition and Results of Operations as well as the consolidated    financial statements, related notes, and other financial information included    herein.

**Deb Shops,  Inc. and Subsidiaries   Consolidated Financial Highlights**

|                                                    |      |                 **Year Ended January 31,** |        |
|---------------------------------------------------------|-----------|--------------------------------------------------------------------------|--------|
|                                                    |           |                                                                     |
| **(in      thousands, except per share data)**          |      | **2006**                                                                 |   |   | **2005** |   |   |  **2004** |   |   | **2003** |   |   | **2002** |   |
|                                                         |           |                                                                     |        |   |  |   |  |   |  |   |
| Net      sales                                          | **$** | **324,964**                                                              |   | **$** | **303,778** |   | **$** | **298,646** |   | **$** | **317,722** |   | **$** | **307,582** |   |
| Gross profit                                            | **$** | **113,283**                                                              |   | **$** | **100,940** |   | **$** | **93,074** |   | **$** | **110,790** |   | **$** | **107,118** |   |
| Operating      income                                   | **$** | **35,772**                                                               |   | **$** | **26,200** |   | **$** | **18,234** |   | **$** | **38,653** |   | **$** | **32,676** |   |
| Net income                                              | **$** | **25,290**                                                               |   | **$** | **17,944** |   | **$** | **12,601** |   | **$** | **25,284** |   | **$** | **23,223** |   |
| Net      income per common share – basic           | **$** | **1.79**                                                                 |   | **$** | **1.30** |   | **$** | **0.92** |   | **$** | **1.85** |   | **$** | **1.71** |   |
| Net income      per common share – diluted         | **$** | **1.78**                                                                 |   | **$** | **1.30** |   | **$** | **0.92** |   | **$** | **1.83** |   | **$** | **1.70** |   |
| Weighted      average shares outstanding – basic   |           | **14,125**                                                               |        |  | **13,729** |  |  | **13,685** |  |  | **13,672** |  |  | **13,546** |   |
| Weighted      average shares outstanding – diluted |           | **14,195**                                                               |        |  | **13,753** |  |  | **13,685** |  |  | **13,815** |  |  | **13,629** |   |
| Total      assets                                       | **$** | **187,669**                                                              |   | **$** | **242,880** |   | **$** | **231,697** |   | **$** | **221,153** |   | **$** | **201,272** |   |
| Deferred      lease credits                             | **$** | **11,511**                                                               |   | **$** | **11,114** |   | **$** | **10,920** |   | **$** | **9,748** |   | **$** | **7,151** |   |
| Shareholders’      equity                          | **$** | **131,555**                                                              |   | **$** | **188,911** |   | **$** | **181,547** |   | **$** | **176,186** |   | **$** | **156,311** |   |
| Book value      per share at year end                   | **$** | **9.19**                                                                 |   | **$** | **13.73** |   | **$** | **13.27** |   | **$** | **12.87** |   | **$** | **11.47** |   |
| Cash dividends      declared per share of common stock  | **$** | **6.500**                                                                |   | **$** | **0.900** |   | **$** | **0.525** |   | **$** | **0.425** |   | **$** | **0.325** |   |

**Item 7. Management’s  Discussion and Analysis of Financial Condition and Results of Operations**

This Management's Discussion    and Analysis of Financial Condition and Results of Operations should be read    in conjunction with the financial statements and accompanying notes appearing    elsewhere in this report. As used in this report, the terms “fiscal 2006,”    “fiscal 2005,” and “fiscal 2004,” refer to our fiscal    years ended January 31, 2006, 2005 and 2004, respectively. The term “fiscal    2007” refers to our fiscal year that will end on January 31, 2007. 

**Overview**

We operate 327 women’s    and men’s specialty apparel retail stores in regional malls and strip    shopping centers principally located in the East and Midwest regions of the    United States. We operate 318 stores under the name “DEB” which    offer moderately priced, fashionable, coordinated women’s sportswear,    dresses, coats, lingerie, accessories and shoes for junior and plus sizes.    DEB merchandise consists of clothing and accessories appealing primarily to    the fashion-conscious junior and plus-sized female consumers between the ages    of 13 and 25. In addition, we operate three outlet stores under the name “CSO.”    The outlet stores offer the same merchandise as DEB at reduced prices and    serve as clearance stores for slow-moving inventory. One hundred and sixty-three    of our stores contain plus-size departments. We also operate six apparel retail    stores under the name “Tops ‘N Bottoms.” The Tops ‘N Bottoms    stores sell moderately priced men’s and women’s apparel. Thirteen    of the DEB stores contain Tops ‘N Bottoms departments. Store information    is as of January 31, 2006 unless otherwise indicated. 

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During fiscal 2006, we continued    the improvements in our operating results that began in fiscal 2005. We increased    our comparable store sales by 7.0% and our total sales volume of approximately    $325,000,000 represented an all time high for our company. Our comparable    store sales performance was driven principally by increases in our dress and    footwear departments. We also continued to reduce markdowns as a percentage    of sales which, when combined with the comparable store sales increase, allowed    us to better leverage fixed costs and report significant gains in net income    and earnings per share in each quarter. As a percentage of sales, our gross    margin increased 170 basis points to 34.9%, operating margin improved 240    basis points to 11.0% and net income and diluted earnings per share increased    41% and 37% to $25.3 million and $1.78, respectively. We also continued    our expansion of the number of stores offering plus-sized merchandise, ending    the year with 163 plus-sized departments versus 140 at the end of fiscal 2005.    We believe that our stores offering both junior and plus-sized merchandise    present more of a destination-shopping environment for our customers. We also    continued our program of selective store closings with the exiting of four    locations. We are currently scheduled to close four stores in the first half    of fiscal 2007 and will continue to carefully evaluate the profitability of    individual stores and close those stores that we believe cannot meet a level    of profitability that we deem acceptable. 

During fiscal 2007, we expect    a net increase of 15 to 20 stores. We anticipate the large majority of the    new stores will include plus-sized departments as we look to grow this business    and further differentiate ourselves from our competition. We also expect to    continue to update our existing stores through our selective remodeling program.    

On December 16, 2004, the    Financial Accounting Standards Board (“FASB”) issued FASB Statement    No. 123(R), Share-Based Payment (“FAS 123 (R)”). FAS 123(R) revised    FASB Statement No. 123, Accounting for Stock-Based Compensation (“FAS    123”) and requires companies to expense the fair value of employee stock    options and other forms of stock-based compensation. FAS 123(R) must be adopted    no later than for fiscal years beginning after June 15, 2005. 

Prior to February 1, 2006,    in complying with FAS 123, we disclosed the value of stock options granted    and their pro forma impact on our net income in a footnote to our financial    statements. Information contained in our footnotes provides the impact on    pro forma net income for past financial statements. Effective February 1,    2006, we adopted the modified prospective application of implementing FAS    123(R). As of January 31, 2006, the compensation cost related to non-vested    stock options not yet recognized totals approximately $206,000. The majority    of this amount will be recognized during fiscal 2007. The impact of the adoption    of FAS 123(R) on fiscal 2007 net income is expected to be less than $0.01    per diluted share. This amount would increase if we issue additional options.    

The following table sets    forth certain store information: 

|                                                   |   | **Store Data**1                        |    |
|--------------------------------------------------------|--------|----------------------------------------|---------|
|                                                   |   |        **Year Ended January 31,** |    |
|                                                   |   |                                        |    |
|                                                   |   |        **2006**                   |    |        **2005** |   |        **2004** |   |
|                                                   |   |                                        |         |   |  |  |   |  |  |   |
| Stores      open at end of the year                    |   |                                   | **327** |   |   | **323** |   |   | **332** |   |
| Average number      in operation during the year       |   |                                   | **325** |   |   | **327** |   |   | **331** |   |
| Average net      sales per store (in thousands)        |   | **$**                              | **998** |   | **$** | **929** |   | **$** | **902** |   |
| Average operating      income per store (in thousands) |   | **$**                              | **110** |   | **$** | **80** |   | **$** | **55** |   |
| Comparable      store sales2 – percent change     |   |                                   | **7.0** | **%** |   | **1.0** | **%** |   | **(9.7** | **)%** |

|   |                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |
| 1      | Includes Tops ‘N      Bottoms stores                                                                                                              |
| 2      | Comparable store sales      include stores opened for both periods. A store is added to the comparable      store base in its 13th month of operation. |
|        |

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The following table sets      forth, for the periods indicated, selected statement of operations data    expressed as a percentage of net sales: 

|                            |   | **Year      Ended January 31,** |   |
|---------------------------------|--------|---------------------------------|--------|
|                            |   |                                 |   |
|                            |   | **2006**                        |   | **2005** |   | **2004** |   |
|                            |   |                                 |   |  |   |  |   |
| Net sales                       |   | **100.0**                       | **%**  | **100.0** | **%** | **100.0** | **%** |
| Gross profit                    |   | **34.9**                        | **%**  | **33.2** | **%** | **31.2** | **%** |
| Operating      income           |   | **11.0**                        | **%**  | **8.6** | **%** | **6.1** | **%** |
| Income before      income taxes |   | **12.3**                        | **%**  | **9.4** | **%** | **6.5** | **%** |
| Income tax      provision       |   | **4.5**                         | **%**  | **3.5** | **%** | **2.3** | **%** |
| Net income                      |   | **7.8**                         | **%**  | **5.9** | **%** | **4.2** | **%** |

**Fiscal 2006 compared  to Fiscal 2005**

***Net sales***

Net sales increased $21,186,000,    or 7.0%, to $324,964,000 in fiscal 2006 from $303,778,000 in fiscal    2005. The increase in net sales was due to a 7.0% or $20,448,000 increase    in comparable store sales, as well as to the net effect of stores excluded    from the comparable store sales calculation of $737,000. The increase    is due to improved acceptance of our merchandise offering, particularly in    our dress and footwear departments, versus last year, as evidenced by a 337    basis point reduction in markdowns in fiscal 2006 versus fiscal 2005. 

***Cost of sales,    including buying and occupancy costs***

 Cost of sales, including    buying and occupancy costs, increased $8,842,000 or 4.4%, to $211,680,000    in fiscal 2006 from $202,838,000 in fiscal 2005. As a percentage of net    sales, these costs decreased to 65.1% in fiscal 2006 from 66.8% in fiscal    2005. The dollar increase between periods was due primarily to the $21,186,000    increase in sales. The decrease as a percentage of sales was due to an improvement    in merchandise margins as a result of the aforementioned 337 basis point reduction    in markdowns. Buying and occupancy costs were 15.8% and 16.7% of net sales    for fiscal 2006 and 2005, respectively. 

***Selling and    administrative expenses***

Selling and administrative    expenses increased $2,714,000 or 3.9%, to $72,070,000 in fiscal 2006    from $69,356,000 in fiscal 2005. As a percentage of net sales, these costs    decreased to 22.2% in fiscal 2006 from 22.8% in fiscal 2005. The dollar increase    between the periods was due to increases in store related payroll costs, health    and workers’ compensation insurance, professional services fees and merchant    fees relating to customer credit card charges. The decrease as a percentage    of sales was a result of the sales increase in fiscal 2006.

***Depreciation    and amortization***

Depreciation and amortization    expense increased $57,000 or 1.1%, to $5,441,000 in fiscal 2006 from    $5,384,000 in fiscal 2005. As a percentage of net sales, these expenses    decreased to 1.7% in fiscal 2006 from 1.8% in fiscal 2005. During fiscal 2005,    we recognized $176,000 in asset impairment charges related to unprofitable    stores. No impairment charges were recorded in fiscal 2006. 

***Operating income***

Operating income increased    $9,572,000 or 36.5%, to $35,772,000 in fiscal 2006 from $26,200,000    in fiscal 2005. As a percentage of net sales, operating income increased to    11.0% in fiscal 2006 from 8.6% in fiscal 2005. The dollar and percentage increases    were due primarily to the aforementioned increases in sales and gross profit    margin, offset by increases in selling and administrative and depreciation    expense. 

***Other income,    principally interest***

Other income, principally    interest, increased $1,819,000 or 78.5% to $4,135,000 in fiscal 2006    from $2,316,000 in fiscal 2005. Other income was offset by losses on disposition    of fixed assets of $69,000 in fiscal 2006 and $70,000 in fiscal 2005.    The increase between fiscal periods was primarily due to higher average interest    rates in fiscal 2006 versus fiscal 2005, offset by a $23,206,000 reduction    in our average investment in marketable securities during the year as a result    of our August 2005 $6.00 per share special dividend. The total amount    of dividends we paid in fiscal 2006 was approximately $93,003,000. 

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***Income tax provision***

The income tax provision    for fiscal 2006 was $14,617,000, resulting in a 36.6% effective tax rate,    as compared to $10,572,000 and a 37.1% effective tax rate for fiscal 2005.    The decrease in the effective rate between fiscal periods was due to the fact    that current year tax-exempt interest earnings represented a larger percentage    of pretax earnings and to a federal deduction for a state tax settlement.    These items were partially offset by an increase in our effective state tax    rate. The effective tax rate in both fiscal years was greater than the statutory    federal rate, primarily as a result of state income taxes, partially offset    by tax-exempt interest.

**Fiscal 2005 compared  to Fiscal 2004**

***Net sales***

 Net sales increased $5,132,000,    or 1.7%, to $303,778,000 in fiscal 2005 from $298,646,000 in fiscal    2004. The increase in net sales was due to a 1.0% or $3,000,000 increase    in comparable store sales, as well as from new store sales of $2,132,000.    The increase was due to improved acceptance of our merchandise offering versus    fiscal 2004, particularly as evidenced by a 340 basis point reduction in markdowns    in fiscal 2005 versus fiscal 2004. 

***Cost of sales,    including buying and occupancy costs***

 Cost of sales, including    buying and occupancy costs, decreased $2,734,000 or 1.3%, to $202,838,000    in fiscal 2005 from $205,572,000 in fiscal 2004. As a percentage of net    sales, these costs decreased to 66.8% in fiscal 2005 from 68.8% in fiscal    2004. The nominal decrease between periods was due to the aforementioned 340    basis point reduction in markdowns in fiscal 2005 versus fiscal 2004. The    decrease as a percentage of sales was also due to the markdown reduction,    partially offset by an increase relating to the increase in sales. Buying    and occupancy costs were 16.7% and 17.0% of net sales for fiscal 2005 and    2004, respectively. 

***Selling and    administrative expenses***

Selling and administrative    expenses increased $256,000 or 0.4%, to $69,356,000 in fiscal 2005    from $69,100,000 in fiscal 2004. As a percentage of net sales, these costs    decreased to 22.8% in fiscal 2005 from 23.1% in fiscal 2004. All material    components of selling and administrative expenses were consistent between    fiscal periods. The decrease as a percentage of sales was a result of the    comparable store sales increase in fiscal 2005.

***Depreciation    and amortization***

 Depreciation and amortization    expense decreased $356,000 or 6.2%, to $5,384,000 in fiscal 2005 from    $5,740,000 in fiscal 2004. As a percentage of net sales, these expenses    decreased to 1.8% in fiscal 2005 from 1.9% in fiscal 2004. A portion of our    store assets and corporate computer equipment became fully depreciated during    the year, resulting in a reduction in depreciation expense versus fiscal 2004.    During fiscal 2005 and 2004, we recognized $176,000 and $181,000,    respectively, in impairment charges related to unprofitable stores.

***Operating income***

Operating income increased    $7,966,000 or 43.7%, to $26,200,000 in fiscal 2005 from $18,234,000    in fiscal 2004. As a percentage of net sales, operating income increased to    8.6% in fiscal 2005 from 6.1% in fiscal 2004. The nominal and percentage increases    were due primarily to the aforementioned increases in sales and gross profit    margin and the reduction in depreciation and amortization expense, slightly    offset by the increase in selling and administrative expenses. 

***Other income,    principally interest***

 Other income, principally    interest, increased $954,000 or 70.0% to $2,316,000 in fiscal 2005    from $1,362,000 in fiscal 2004. Other income is offset by losses on disposition    of fixed assets of $70,000 in fiscal 2005 and $279,000 in fiscal 2004.    The increase between fiscal periods was primarily due to higher average interest    rates in fiscal 2005 versus fiscal 2004, greater average invested balances    in fiscal 2005 versus fiscal 2004, as well as the reduction in losses related    to fixed asset dispositions. 

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***Income tax provision***

The income tax provision    for fiscal 2005 was $10,572,000, resulting in a 37.1% effective tax rate,    as compared to $6,995,000 and a 35.7% effective tax rate for fiscal 2004.    The increase in the effective rate between fiscal periods was due to a higher    effective state income tax rate and, due to the increase in year over year    earnings, current year tax-exempt interest earnings represented a smaller    percentage of pretax earnings. The effective tax rate in both fiscal years    was greater than the statutory federal rate, primarily as a result of state    income taxes, partially offset by tax-exempt interest.

***Liquidity and Capital    Resources***

As of January 31, 2006,    we had cash and cash equivalents of $26,521,000 and marketable securities    of $91,000,000 compared to cash and cash equivalents of $30,299,000    and marketable securities of $146,100,000 as of January 31, 2005. The    cash and cash equivalents are invested principally in money market mutual    funds, while the marketable securities are invested principally in auction    market securities, which trade on a par-in, par-out basis and provide interest-rate    reset options on a revolving 35-day basis. Because we regularly liquidate    our investments in these securities for reasons including, among others, changes    in market interest rates and changes in the availability of and the yield    on alternative investments, we have classified these securities as available    for sale. We do not invest for trading purposes. Accordingly, we do not believe    we have significant exposure to market risk with respect to our investments.    

During the past three fiscal    years, we internally funded all of our operating needs, including capital    expenditures for the opening of new stores and the remodeling of existing    stores, as well as for expenditures pertaining to upgrades to our merchandise    distribution system. Total cash provided by operating activities for fiscal    2006, 2005 and 2004, was $29,345,000, $24,940,000, and $24,777,000,    respectively. For fiscal 2006, cash provided by operations was primarily the    result of net income, increased by depreciation, increases in accrued expenses,    income taxes payable and deferred lease credits, offset by an increase in    merchandise inventories as a result of the earlier receipt of spring 2006    merchandise versus 2005 and the fact that we operated 163 plus-sized departments    at the end of fiscal 2006 versus 140 plus-sized departments at the end of    fiscal 2005. For fiscal 2005, cash provided by operations was primarily the    result of net income, increased by depreciation, increases in income taxes    and trade accounts payable and accrued expenses, offset by an increase in    merchandise inventories. For fiscal 2004, cash provided by operations was    primarily the result of net income, increased by depreciation, increases in    trade accounts payable and deferred lease credits and a decrease in merchandise    inventories, offset by a net decrease in accrued expenses and income taxes    payable. Using cost of sales (excluding buying and occupancy expenses) divided    by average inventory at cost for the applicable periods, the inventory turnover    rates were approximately 5.3, 5.5, and 5.5 times during fiscal 2006, 2005    and 2004, respectively. 

 Net cash provided by investing    activities was $50,067,000 in fiscal 2006. These funds were generated    from the net redemption of our investment securities, offset by purchases    of fixtures and equipment, principally for new and remodeled stores. We redeemed    investment securities to fund the $6.00 per common share special dividend    we paid in August 2005. During fiscal 2005 and fiscal 2004, cash used in investing    activities was $18,121,000 and $18,182,000, respectively. During these    fiscal years, these funds were principally used for the purchase of marketable    securities and for the opening of new stores and the remodeling of existing    stores. During the past three fiscal years, the number of store openings and    remodels were as follows: 

|                  | **Year Ended January 31,** |   |
|-----------------------|----------------------------|--------|
|                  |                            |   |
|                  | **2006**                   |   | **2005** |   | **2004** |   |
|                  |                            |   |  |   |  |   |
| New stores            | 8                          |   | 8 |   | 13 |   |
| Remodeled      stores | 12                         |   | 11 |   | 17 |   |

 Net cash used in financing    activities was $83,190,000, $10,585,000 and $6,898,000 for fiscal    2006, 2005 and 2004, respectively. During these fiscal years, these funds    were principally used for the payment of dividends on preferred and common    stock. Fiscal 2006 included the aforementioned $6.00 per common share    special dividend, amounting to $85,916,000, paid in August 2005. In fiscal    2006 and 2005, these amounts were partially offset by the proceeds from the    exercise of stock options of $9,813,000 and $1,831,000, respectively.    There were no stock option exercises during fiscal 2004. 

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During fiscal 2007, we expect    to begin the roll-out of new point-of-sale hardware and software. The total    cost of this implementation, which we expect to complete during fiscal 2008,    is not expected to be in excess of $4,000,000. We had an unsecured line    of credit in the amount of $20,000,000 as of January 31, 2006. Of this    amount, $507,000 was outstanding as letters of credit for the purchase    of inventory. We believe that internally generated funds will be sufficient    to meet our anticipated capital expenditures and current operating needs.    Initial lease terms for our retail apparel stores, warehouse and office building    range from 15 to 20 years. Following is a summary of our contractual obligations    for minimum rental payments on our non-cancelable operating leases and minimum    payments on other commitments as of January 31, 2006: 

|                  | **Payments      Due by Period** |        |
|-----------------------|---------------------------------|-------------|
|                  |                                 |        |
|                  |                            |        |   | **Less      than 1** |   | **1      - 3** |   | ** 3      - 5** |   | **More      than 5** |   |
|                  | **Total**                       |        | **year** |   | **years** |   | **years** |   | **years** |   |
|                  |                                 |        |  |   |  |   |  |   |  |   |
| Operating      leases | $                           | 136,924,000 |   | $ | 25,544,000 |   | $ | 40,426,000 |   | $ | 29,905,000 |   | $ | 41,049,000 |   |
| Other commitments     |                                 | 507,000     |  |  | 507,000 |  |  | — |  |  | — |  |  | — |   |
|                  |                                 |             |  |  |  |  |  |  |  |  |  |  |  |  |   |
| Total                 | $                           | 137,431,000 |   | $ | 26,051,000 |   | $ | 40,426,000 |   | $ | 29,905,000 |   | $ | 41,049,000 |   |
|                  |                                 |             |  |  |  |  |  |  |  |  |  |   |  |  |   |

The above table excludes    $1,804,000 in dividends, which were accrued at January 31, 2006 and were    paid in February 2006. 

***Seasonal Nature    of Operations***

 During fiscal 2006, approximately    27% and 51% of our net sales and net income occurred during the fourth quarter,    as compared to 27% and 59% of our net sales and net income for fiscal 2005.    The fourth quarter includes the Christmas selling season. The decrease in    the percentage of our fiscal 2006 fourth quarter net income compared to the    fourth quarter of fiscal 2005 was due to the increase in net income for the    first three quarters of fiscal 2006 versus the comparable period in fiscal    2005. See “Quarterly Financial Information (Unaudited)” and the    preceding discussions on “Fiscal 2006 compared to Fiscal 2005” and    “Fiscal 2005 compared to Fiscal 2004.” 

***Critical Accounting    Policies***

Our accounting policies    are more fully described in Note A of the Notes to Consolidated Financial    Statements included herein. The consolidated financial statements and accompanying    notes included in Item 8. Financial Statements and Supplementary Data have    been prepared in conformity with accounting principles generally accepted    in the United States. This requires us to make estimates and assumptions that    affect the amounts reported in the financial statements and accompanying notes.    These estimates and assumptions are based on historical experience, analysis    of current trends, and various other factors that we believe to be reasonable    under the circumstances. Actual results could differ from those estimates    under different assumptions or conditions. 

Periodically, our accounting    policies, assumptions, and estimates are reevaluated and adjustments are made    when facts and circumstances warrant. Historically, actual results have not    differed materially from those determined using required estimates. Our significant    accounting policies are described in the notes accompanying the financial    statements included in Item 8. Financial Statements and Supplementary Data.    However, we consider the following accounting policies to be more dependent    on the use of estimates and assumptions. 

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***Revenue Recognition***

 Revenue from merchandise    sales is net of returns and allowances and excludes sales tax. The provisions    of the SEC Staff Accounting Bulletin (“SAB”) No. 101, “Revenue    Recognition in Financial Statements,” (as amended by SAB 104) have been    applied, and as a result, a reserve is provided for estimated future sales    returns that is based on an analysis of actual returns received following    the end of each fiscal period. We also defer the recognition of layaway sales    to the date of delivery. A change in the actual rate of sales returns and    layaway sales experience would affect the amount of revenue recognized. 

***Inventories***

 Merchandise inventories    are valued at the lower of cost or market as determined by the retail inventory    method (first-in, first-out method), which is an averaging method that is    widely used in the retail industry. Under the retail inventory method (“RIM”),    the valuation of inventories at cost and the resulting gross margins are adjusted    based on the effects of markdowns and shrinkage relating to our retail inventories.    The use of the RIM will result in valuing inventories at the lower of cost    or market if markdowns are currently taken as a reduction of the retail value    of inventories. The RIM calculation involves certain significant management    judgments and estimates including, among others, initial merchandise pricing,    markups, markdowns, and shrinkage, all of which affect the ending inventory    valuation at cost as well as resulting gross margins. Events such as store    closings, liquidations, and the general economic environment for retail apparel    sales could result in an increase in the level of markdowns, which under the    RIM would result in lower inventory values and an increase to cost of goods    sold as a percentage of net sales in future periods. In addition, failure    to estimate markdowns currently would result in an overstatement of inventory    cost under the lower of cost or market principle.

***Income Taxes***

As part of the periodic    financial statement closing process, we estimate our income tax liability    and assess the recoverability of deferred tax assets. Income taxes payable    are estimated based on enacted tax rates applied to the income expected to    be taxed currently. The realizability of deferred tax assets is assessed based    on the availability of carrybacks of future deductible amounts and the projection    of future taxable income. We cannot guarantee that we will be profitable in    future years. Historically, there have not been significant differences between    the estimated tax accrual versus actual amounts. 

***Impairment    of Long-Lived Assets***

As required under Statement    of Financial Accounting Standards (“SFAS”) No. 144, “Accounting    for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”),    we are required to assess our long-lived assets for recoverability whenever    events or changes in circumstances indicate that the carrying amount of an    asset may not be recoverable. When evaluating potential impairment, consideration    is given to historical performance and future estimated results. The carrying    amount of the asset is then compared to the estimated future undiscounted    cash flows expected to result from the use of the asset. If the estimated    future undiscounted cash flows are less than the carrying amount of the asset,    such asset is written down to its estimated fair value and an impairment loss    is recognized. No impairment charges were recorded during fiscal 2006. During    fiscal 2005 and 2004, we recognized $176,000 and $181,000, respectively,    in impairment charges related to unprofitable stores.

***Workers’ Compensation    Insurance***

We use estimates in the    determination of the required accruals for workers’ compensation insurance.    These estimates are based upon review of historical information, current claims    experience and consultation with third-parties. Future projections of claims    may require management to revise these accruals. 

***Recent Accounting    Pronouncements***

On December 16, 2004 the    Financial Accounting Standards Board (“FASB”) issued FASB Statement    No. 123(R), Share-Based Payment (“FAS 123 (R)”). FAS 123(R) revised    FASB Statement No. 123, Accounting for Stock-Based Compensation (“FAS    123”) and requires companies to expense the fair value of employee stock    options and other forms of stock-based compensation. FAS 123(R) must be adopted    no later than for fiscal years beginning after June 15, 2005. 

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Prior to February 1, 2006,    in complying with FAS 123, we disclosed the value of stock options granted    and its pro forma impact on our net income in a footnote to our financial    statements. Information contained in our footnotes provides the impact on    pro forma net income for past financial statements. Effective February 1,    2006, we adopted the modified prospective application of implementing FAS    123(R). As of January 31, 2006, the compensation cost related to non-vested    stock options not yet recognized totals approximately $206,000. The majority    of this amount will be recognized during fiscal 2007. The impact of the adoption    of FAS 123(R) on fiscal 2007 net income is expected to be less than $0.01    per diluted share. This amount would increase if we issue additional options.    

**Item7A. Quantitative  and Qualitative Disclosures About Market Risk**

See the first paragraph    under the caption “Liquidity and Capital Resources” in this Annual    Report on Form 10-K for a discussion regarding quantitative and qualitative    disclosures about market risk. 

**Item 8. Financial  Statements and Supplementary Data**

**MANAGEMENT'S  ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

Our management is responsible    for establishing and maintaining adequate internal control over financial    reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities    Exchange Act of 1934). Our internal control over financial reporting is 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. Our internal control over financial    reporting includes those policies and procedures that: (i) pertain to the    maintenance of records that, in reasonable detail, accurately and fairly reflect    our transactions and dispositions of our assets; (ii) provide reasonable assurance    that our transactions are recorded as necessary to permit preparation of our    financial statements in accordance with generally accepted accounting principles,    and that our receipts and expenditures are being made only in accordance with    authorizations of our management and Board of Directors; and (iii) provide    reasonable assurance regarding prevention or timely detection of unauthorized    acquisition, use, or disposition of our assets that could have a material    effect on our financial statements. 

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

Management assessed the    effectiveness of our internal control over financial reporting as of January    31, 2006. In making this assessment, our management used the criteria set    forth in “Internal Control – Integrated Framework,” issued    by the Committee of Sponsoring Organizations of the Treadway Commission (the    “COSO criteria”). Based on this assessment, management concluded    that our internal control over financial reporting was effective as of January    31, 2006. 

Our independent registered    public accounting firm, BDO Seidman LLP, has issued an attestation report    on management's assessment of our internal control over financial reporting,    which appears immediately following this report. 

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**Report  of Independent Registered Public Accounting Firm on Internal Control  Over Financial Reporting**

 

Board of Directors and Shareholders  Deb Shops, Inc. and subsidiaries  Philadelphia, Pennsylvania 

We have audited management’s    assessment, included in Management’s Annual Report on Internal Control    Over Financial Reporting, that Deb Shops, Inc. and subsidiaries (the “Company”)    maintained effective internal control over financial reporting as of January    31, 2006, based on criteria established in *Internal Control – Integrated    Framework* issued by the Committee of Sponsoring Organizations of the    Treadway Commission (the “COSO criteria”). 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    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, 2006, is fairly stated, in all material respects,    based on the COSO criteria. Also, in our opinion, the Company maintained,    in all material respects, effective internal control over financial reporting    as of January 31, 2006, based on the COSO criteria. 

We have also audited, in    accordance with standards of the Public Company Accounting Oversight Board    (United States), the consolidated balance sheets of the Company as of January    31, 2006 and 2005 and the related consolidated statements of operations, shareholders’    equity, and cash flows for each of the two years in the period ended January    31, 2006, and our report dated April 10, 2006 expressed an unqualified opinion    thereon. 

| /s/ BDO SEIDMAN,      LLP  |   |
|----------------------------|--------|
|                            |   |
| Philadelphia, Pennsylvania |   |
| April 10, 2006             |   |

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**Report  of Independent Registered Public Accounting Firm**

 

Board of Directors and Shareholders  Deb Shops, Inc. and subsidiaries  Philadelphia, Pennsylvania 

We have audited the accompanying      consolidated balance sheets of Deb Shops, Inc. and subsidiaries as of January      31, 2006 and 2005, and the related consolidated statements of income, stockholders’    equity, and cash flows for each of the two years in the period ended January    31, 2006. These financial statements are the responsibility of the Company’s    management. Our responsibility is to express an opinion on these financial    statements based on our audits. 

We 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,    assessing the accounting principles used and significant estimates made by    management, as well as evaluating the overall financial statement presentation.    We believe that our audits provide a reasonable basis for our opinion. 

In our opinion, the consolidated      financial statements referred to above present fairly, in all material      respects,    the financial position of Deb Shops, Inc. and subsidiaries at January 31,      2006 and 2005, and the results of their operations and their cash flows      for    each of the two years in the period ended January 31, 2006, in conformity      with accounting principles generally accepted in the United States of America.    

We also have audited, in    accordance with the standards of the Public Company Accounting Oversight Board    (United States), the effectiveness of Deb Shops, Inc. and subsidiaries’    internal control over financial reporting as of January 31, 2006, 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 10, 2006 expressed an unqualified opinion thereon.    

| /s/ BDO SEIDMAN,      LLP  |   |
|----------------------------|--------|
|                            |   |
| Philadelphia, Pennsylvania |   |
| April 10, 2006             |   |

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**REPORT  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors  and Shareholders of Deb Shops, Inc. 

We have audited the accompanying    consolidated balance sheet of Deb Shops, Inc. and subsidiaries as of January    31, 2004 (not included herein), and the related consolidated statements of    operations, shareholders’ equity, and cash flows for the year then ended.    These financial statements are the responsibility of the Company’s management.    Our responsibility is to express an opinion on these financial statements    based on our 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 the financial statements    are free of material misstatement. We were not engaged to perform an audit    of the Company’s internal control over financial reporting. Our audit    included consideration of internal control over financial reporting as a basis    for designing audit procedures that are appropriate in the circumstances,    but not for the purpose of expressing an opinion on the effectiveness of the    Company’s internal control over financial reporting. Accordingly, we    express no such opinion. An audit also includes examining, on a test basis,    evidence supporting the amounts and disclosures in the financial statements,    assessing the accounting principles used and significant estimates made by    management, and evaluating the overall financial statement presentation. 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 consolidated financial position of Deb Shops, Inc. and subsidiaries at    January 31, 2004, and the consolidated results of their operations and their    cash flows for the year then ended, in conformity with U.S. generally accepted    accounting principles. 

As discussed in Note B,    the consolidated financial statements for fiscal 2004 were restated in fiscal    2005.

|                                           | ERNST & YOUNG LLP |
|------------------------------------------------|-----------------------|
| Philadelphia, Pennsylvania                     |                  |
| March 8, 2004,                                 |                  |
| except for Note B as      to which the date is |                  |
| April 15, 2005                                 |                  |

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**DEB SHOPS,  INC. AND SUBSIDIARIES**

**CONSOLIDATED  STATEMENTS OF OPERATIONS**

|                                                            | **Year Ended January 31,** |            |
|------------------------------------------------------------|----------------------------|-----------------|
|                                                            |
|                                                            |                            | **2006**        |  |  | **2005** |  |  | **2004** |
|                                                       |                            |                 |   |  |  |   |  |  |
| Net      sales                                             | **$**                  | **324,963,607** |   | **$** | **303,778,103** |   | **$** | **298,645,811** |   |
|                                                       |                            |            |  |  |   |  |  |   |   |
| Cost        of sales, including buying and occupancy costs |                            | **211,680,152** |  |  | **202,837,874** |  |  | **205,571,543** |   |
|                                                       |                            |                 |   |  |  |   |  |  |   |
| Gross      profit                                          |                            | **113,283,455** |  |  | **100,940,229** |  |  | **93,074,268** |   |
|                                                       |                            |                 |  |  |  |  |  |  |  |
| Operating expenses:                                        |                            |                 |  |  |  |  |  |  |  |
| Selling        and administrative                          |                            | **72,070,465**  |  |  | **69,356,328** |  |  | **69,100,302** |   |
| Depreciation        and amortization                       |                            | **5,441,096**   |  |  | **5,384,283** |  |  | **5,740,192** |   |
|                                                       |                            |                 |   |  |  |   |  |  |   |
|                                                            |                            | **77,511,561**  |  |  | **74,740,611** |  |  | **74,840,494** |   |
|                                                       |                            |                 |   |  |  |   |  |  |   |
|                                                       |                            |            |  |  |   |  |  |   |   |
| Operating      income                                      |                            | **35,771,894**  |  |  | **26,199,618** |  |  | **18,233,774** |   |
| Other        income, principally interest                  |                            | **4,135,410**   |  |  | **2,316,312** |  |  | **1,362,198** |   |
|                                                       |                            |                 |   |  |  |   |  |  |   |
| Income      before income taxes                            |                            | **39,907,304**  |  |  | **28,515,930** |  |  | **19,595,972** |   |
| Income        tax provision                                |                            | **14,617,000**  |  |  | **10,572,000** |  |  | **6,995,000** |   |
|                                                       |                            |                 |   |  |  |   |  |  |   |
| Net      income                                            | ** $**            | **25,290,304**  |   | ** $** | **17,943,930** |   | ** $** | **12,600,972** |   |
|                                                       |                            |                 |  |  |  |  |  |  |   |
| Net income per common      share                           |                            |                 |  |  |  |  |  |  |  |
| Basic                                                      | ** $**            | **1.79**        |   | **$** | **1.30** |   | **$** | **0.92** |   |
|                                                       |                            |                 |  |  |  |  |  |  |   |
| Diluted                                                    | ** $**            | **1.78**        |   | **$** | **1.30** |   | **$** | **0.92** |   |
|                                                       |                            |                 |  |  |  |  |  |  |   |
|                                                       |                            |                 |  |  |  |  |  |  |  |
| Weighted average number      of common shares outstanding  |                            |                 |  |  |  |  |  |  |  |
| Basic                                                      |                            | **14,125,484**  |  |  | **13,729,100** |  |  | **13,684,900** |   |
|                                                       |                            |                 |  |  |  |  |  |  |   |
| Diluted                                                    |                            | **14,195,078**  |  |  | **13,753,461** |  |  | **13,684,900** |   |
|                                                       |                            |                 |  |  |  |  |  |  |   |

See notes  to consolidated financial statements.

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**DEB SHOPS,  INC. AND SUBSIDIARIES**

**CONSOLIDATED  BALANCE SHEETS**

|                                                                                                          | **January 31,** |            |
|----------------------------------------------------------------------------------------------------------|-----------------|-----------------|
|                                                                                                          |                 |
|                                                                                                          |                 | **2006**        |  |  | **2005** |
| **ASSETS**                                                                                               |                 |                 |  |  |  |
| **   Current      Assets**                                                                |                 |                 |  |  |  |  |
|    Cash      and cash equivalents                                                         | **$**       | **26,520,757**  |   | **$** | **30,298,970** |   |
|    Marketable      securities                                                             |                 | **91,000,000**  |  |  | **146,100,000** |   |
|    Merchandise      inventories                                                           |                 | **32,902,705**  |  |  | **30,560,176** |   |
|    Prepaid      expenses and other                                                        |                 | **3,247,389**   |  |  | **2,616,185** |   |
|    Deferred      income taxes                                                             |                 | **1,180,154**   |  |  | **910,889** |   |
|                                                                                                     |                 |                 |  |  |  |   |
| Total      current assets                                                                                |                 | **154,851,005** |  |  | **210,486,220** |   |
|                                                                                                     |                 |                 |  |  |  |  |
| **   Property,      Plant and Equipment – at cost**                                  |                 |                 |  |  |  |  |
|    Land                                                                                   |                 | **150,000**     |  |  | **150,000** |   |
|    Buildings                                                                              |                 | **2,365,697**   |  |  | **2,365,697** |   |
|    Leasehold      improvements                                                            |                 | **55,615,772**  |  |  | **53,168,985** |   |
|    Furniture      and equipment                                                           |                 | **16,794,542**  |  |  | **16,568,516** |   |
|                                                                                                     |                 |                 |  |  |  |   |
|                                                                                                          |                 | **74,926,011**  |  |  | **72,253,198** |   |
|                                                                                                     |                 |            |  |  |   |   |
|    Less      accumulated depreciation and amortization                                    |                 | **51,600,719**  |  |  | **48,993,382** |   |
|                                                                                                     |                 |                 |  |  |  |   |
|    Net      property, plant and equipment                                                 |                 | **23,325,292**  |  |  | **23,259,816** |   |
|                                                                                                     |                 |                 |  |  |  |  |
| **   Other      Assets**                                                                  |                 |                 |  |  |  |  |
|    Deferred      income taxes                                                             |                 | **7,780,844**   |  |  | **7,421,935** |   |
|    Other                                                                                  |                 | **1,712,223**   |  |  | **1,712,223** |   |
|                                                                                                     |                 |                 |  |  |  |   |
| Total      other assets                                                                                  |                 | **9,493,067**   |  |  | **9,134,158** |   |
|                                                                                                     |                 |                 |  |  |  |   |
| Total      assets                                                                                        | **$**       | **187,669,364** |   | **$** | **242,880,194** |   |
|                                                                                                     |                 |                 |  |  |  |   |
| **LIABILITIES AND      SHAREHOLDERS’ EQUITY**                                                       |                 |                 |  |  |  |  |
| **   Current      Liabilities**                                                           |                 |                 |  |  |  |  |
|    Trade      accounts payable                                                            | **$**       | **26,917,480**  |   | **$** | **26,921,683** |   |
|    Accrued      expenses and other                                                        |                 | **13,173,334**  |  |  | **11,314,244** |   |
|    Income      taxes payable                                                              |                 | **4,511,782**   |  |  | **4,618,905** |   |
|                                                                                                     |                 |                 |  |  |  |   |
| Total      current liabilities                                                                           |                 | **44,602,596**  |  |  | **42,854,832** |   |
|                                                                                                     |                 |            |  |  |   |   |
|    Deferred      lease credits                                                            |                 | **11,511,430**  |  |  | **11,114,224** |   |
|                                                                                                     |                 |                 |  |  |  |   |
| Total      liabilities                                                                                   |                 | **56,114,026**  |  |  | **53,969,056** |   |
|                                                                                                     |                 |                 |  |  |  |  |
| **   Shareholders’      Equity**                                                     |                 |                 |  |  |  |  |
|    Series      A preferred stock, par value $1.00 per share:                          |                 |                 |  |  |  |  |
|    Authorized      – 5,000,000      shares                                           |                 |                 |  |  |  |  |
|    Issued      and outstanding – 460      shares,liquidation      value $460,000 |                 | **460**         |  |  | **460** |   |
|                                                                                                     |                 |                 |  |  |  |  |
| Common stock, par value      $.01 per share:                                                         |                 |                 |  |  |  |  |
|    Authorized      – 50,000,000      shares                                          |                 |                 |  |  |  |  |
|    Issued      – 15,688,290      shares                                              |                 | **156,883**     |  |  | **156,883** |   |
|    Additional      paid-in capital                                                        |                 | **14,187,841**  |  |  | **7,232,646** |   |
|    Retained      earnings                                                                 |                 | **125,684,867** |  |  | **193,467,638** |   |
|                                                                                                     |                 |                 |  |  |  |   |
|                                                                                                          |                 | **140,030,051** |  |  | **200,857,627** |   |
| Less common treasury      shares, at cost:                                                               |                 |                 |  |  |  |  |
|    January      31, 2006:1,366,482; January 31, 2005: 1,926,279                           |                 | **8,474,713**   |  |  | **11,946,489** |   |
|                                                                                                     |                 |                 |  |  |  |   |
|    Total      shareholders’ equity                                                   |                 | **131,555,338** |  |  | **188,911,138** |   |
|                                                                                                     |                 |                 |  |  |  |   |
|    Total      liabilities and shareholders’ equity                                   | **$**       | **187,669,364** |   | **$** | **242,880,194** |   |
|                                                                                                     |                 |                 |  |  |  |   |

 See notes  to consolidated financial statements.

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**DEB SHOPS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

|                                                   |   | **Preferred** |    | **Common** |      | **Additional**                  |   | **Retained** |           |                    |      |            |   |      |            |
|--------------------------------------------------------|--------|---------------|---------|------------|-----------|---------------------------------|--------|--------------|----------------|-------------------------|-----------|-----------------|--------|-----------|-----------------|
|                                                   |   | **Stock**     |    | **Stock**  |      | **Paid-In      Capital**        |   | **Earnings** |           | **Treasury      Stock** |      | **Totals**      |   |
|                                                   |   |               |         |       |           |                                 |   |              |                |                    |           |                 |        |           |                 |   |  |  |  |
| Balances      – February 1, 2003                  |   | **$**     | **460** |       | **$** | **156,883**                     |   | **$**    | **5,864,790**  |                    | **$** | **182,588,234** |        | **$** | **(12,424,720** | **)** | **$** | **176,185,647** |  |
| Net income                                             |   |          |    |       |      |                            |   |         |           |                    |      | **12,600,972**  |   |      |            |   |   | **12,600,972** |   |
| Dividends      on preferred stock ($120 per share) |   |          |    |       |      |                            |   |         |           |                    |      | **(55,200**     | **)**  |      |            |   |   | **(55,200** | **)** |
| Dividends on common stock      ($0.525 per share)  |   |          |    |       |      |                            |   |         |           |                    |      | **(7,184,574**  | **)**  |      |            |   |   | **(7,184,574** | **)** |
|                                                   |   |               |         |       |           |                                 |   |              |                |                    |           |                 |        |           |                 |   |  |  |  |
| Balances – January 31,      2004                  |   |          | **460** |       |      | **156,883**                     |   |         | **5,864,790**  |                    |      | **187,949,432** |   |      | **(12,424,720** | **)** |   | **181,546,845** |   |
| Net income                                             |   |          |    |       |      |                            |   |         |           |                    |      | **17,943,930**  |   |      |            |   |   | **17,943,930** |   |
| Dividends on preferred      stock ($120 per share) |   |          |    |       |      |                            |   |         |           |                    |      | **(55,200**     | **)**  |      |            |   |   | **(55,200** | **)** |
| Dividends on common stock      ($0.900 per share)  |   |          |    |       |      |                            |   |         |           |                    |      | **(12,370,524** | **)**  |      |            |   |   | **(12,370,524** | **)** |
| Stock options exercised                                |   |          |    |       |      |                            |   |         | **1,353,156**  |                    |      |            |   |      | **478,231**     |   |   | **1,831,387** |   |
| Tax benefit from exercise      of stock options        |   |          |    |       |      |                            |   |         | **14,700**     |                    |      |            |   |      |            |   |   | **14,700** |   |
|                                                   |   |               |         |       |           |                                 |   |              |                |                    |           |                 |        |           |                 |   |  |  |  |
| Balances – January 31,      2005                  |   |          | **460** |       |      |      **156,883** |   |         | **7,232,646**  |                    |      | **193,467,638** |   |      | **(11,946,489** | **)** |   | **188,911,138** |   |
| Net income                                             |   |          |    |       |      |                            |   |         |           |                    |      | **25,290,304**  |   |      |            |   |   | **25,290,304** |   |
| Dividends on preferred      stock ($120 per share) |   |          |    |       |      |                            |   |         |           |                    |      | **(55,200**     | **)**  |      |            |   |   | **(55,200** | **)** |
| Dividends on common stock      ($6.500 per share)  |   |          |    |       |      |                            |   |         |           |                    |      | **(93,017,875** | **)**  |      |            |   |   | **(93,017,875** | **)** |
| Stock options exercised                                |   |          |    |       |      |                            |   |         | **6,341,083**  |                    |      |            |   |      | **3,471,776**   |   |   | **9,812,859** |   |
| Tax benefit from exercise      of stock options        |   |          |    |       |      |                            |   |         | **614,112**    |                    |      |            |   |      |            |   |   | **614,112** |   |
|                                                   |   |               |         |       |           |                                 |   |              |                |                    |           |                 |        |           |                 |   |  |  |  |
| Balances – January 31,      2006                  |   | **$**     | **460** |       | **$** | **156,883**                     |   | **$**    | **14,187,841** |                    | **$** | **125,684,867** |   | **$** | **(8,474,713**  | **)** | **$** | **131,555,338** |   |
|                                                   |   |               |         |       |           |                                 |   |              |                |                    |           |                 |   |           |                 |   |  |  |   |
|                                                   |   |          |    |       |      |                            |   |         |           |                    |      |            |   |      |            |   |   |   |   |

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**DEB SHOPS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                                             |   |      | **Year      Ended January 31,** |   |
|--------------------------------------------------------------------------------------------------|--------|-----------|---------------------------------|--------|
|                                                                                             |   |           |                                 |        |  |  |  |  |  |   |
|                                                                                             |   |      | **2006**                        |   |   | **2005** |   |   | **2004** |   |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
| Cash flows      from operating activities:                                                       |        |           |                                 |        |  |  |  |  |  |  |
|  Net      income                                                                            |   | **$** | **25,290,304**                  |        | **$** | **17,943,930** |  | **$** | **12,600,972** |  |
|  Adjustments      to reconcile net income tonet      cash provided by operating activities: |        |           |                                 |        |  |  |  |  |  |  |
|           Depreciation and amortization                                           |        |           | **5,441,096**                   |        |  | **5,384,283** |  |  | **5,740,192** |  |
|      Deferred      income tax benefit                                             |        |           | **(840,000**                    | **)**  |  | **(235,000** | **)** |  | **(740,000** | **)** |
|           Loss on retirement of property, plant and equipment                     |        |           | **69,060**                      |        |  | **70,401** |  |  | **278,910** |  |
|      Changes      in operating assets and liabilities:                            |        |           |                                 |        |  |  |  |  |  |  |
|               (Increase) decrease in merchandise inventories            |        |           | **(2,342,529**                  | **)**  |  | **(2,295,501** | **)** |  | **1,646,615** |  |
|               (Increase) decrease in prepaid expenses and other         |        |           | **(631,204**                    | **)**  |  | **351,618** |  |  | **(470,872** | **)** |
|               (Decrease) increase in trade accounts payable             |        |           | **(4,203**                      | **)**  |  | **398,124** |  |  | **4,906,893** |  |
|               Increase in accrued expenses and other                    |        |           | **1,246,714**                   |        |  | **1,163,149** |  |  | **465,528** |  |
|               Increase (decrease) in income taxes payable               |        |           | **718,812**                     |        |  | **1,964,973** |  |  | **(903,419** | **)** |
|               Increase in deferred lease credits                        |        |           | **397,206**                     |        |  | **194,137** |  |  | **1,251,819** |  |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
|      Net      cash provided by operating activities                               |        |           | **29,345,256**                  |        |  | **24,940,114** |  |  | **24,776,638** |  |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
| Cash flows      from investing activities:                                                       |        |           |                                 |        |  |  |  |  |  |  |
|  Purchases      of property, plant and equipment                                            |        |           | **(5,033,231**                  | **)**  |  | **(4,220,861** | **)** |  | **(4,231,924** | **)** |
|  Purchases      of investment securities                                                    |        |           | **(111,100,000**                | **)**  |  | **(79,600,000** | **)** |  | **(70,350,000** | **)** |
|  Sales      of investment securities                                                        |        |           | **166,200,000**                 |        |  | **65,700,000** |  |  | **56,400,000** |  |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
|      Net      cash provided by (used in) investing activities                     |        |           | **50,066,769**                  |        |  | **(18,120,861** | **)** |  | **(18,181,924** | **)** |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
| Cash flows      from financing activities:                                                       |        |           |                                 |        |  |  |  |  |  |  |
|  Preferred      stock cash dividends paid                                                   |        |           | **(55,200**                     | **)**  |  | **(55,200** | **)** |  | **(55,200** | **)** |
|  Common      stock cash dividends paid                                                      |        |           | **(92,947,897**                 | **)**  |  | **(12,360,887** | **)** |  | **(6,842,451** | **)** |
|  Proceeds      from exercise of stock options                                               |        |           | **9,812,859**                   |        |  | **1,831,386** |  |  | **—** |  |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
|      Net      cash used in financing activities                                   |        |           | **(83,190,238**                 | **)**  |  | **(10,584,701** | **)** |  | **(6,897,651** | **)** |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
| Decrease      in cash and cash equivalents                                                       |        |           | **(3,778,213**                  | **)**  |  | **(3,765,448** | **)** |  | **(302,937** | **)** |
| Cash and      cash equivalents at beginning of year                                              |        |           | **30,298,970**                  |        |  | **34,064,418** |  |  | **34,367,355** |  |
|                                                                                             |   |           |                                 |   |  |  |   |  |  |   |
| Cash and      cash equivalents at end of year                                                    |   | **$** | **26,520,757**                  |        | **$** | **30,298,970** |  | **$** | **34,064,418** |  |
|                                                                                             |        |           |                                 |        |  |  |  |  |  |  |
| Supplemental      disclosures of cash flow information:                                          |        |           |                                 |        |  |  |  |  |  |  |
|  Cash      paid during the year for:                                                        |        |           |                                 |        |  |  |  |  |  |  |
|      Income      taxes, net                                                       |   | **$** | **12,641,000**                  |        | **$** | **8,991,000** |  | **$** | **8,543,000** |  |
|                                                                                             |        |           |                                 |        |  |  |  |  |  |  |

See notes  to consolidated financial statements.

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**DEB SHOPS, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**– A – SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES**

**Operation:**    Deb Shops, Inc. (hereinafter referred to as “DEB”, “we”,    “our” or the “Company”) operates 327 women’s and    men’s specialty apparel retail stores in regional malls and strip shopping    centers principally located in the East and Midwest regions of the United    States. We operate 321 stores under the name “DEB” which offer moderately    priced, fashionable, coordinated women’s sportswear, dresses, coats,    lingerie, accessories and shoes for junior and plus sizes. DEB merchandise    consists of clothing and accessories appealing primarily to the fashion-conscious    junior and plus-sized female consumers between the ages of 13 and 25. In addition,    we operate three outlet stores under the name “CSO.” The outlet    stores offer the same merchandise as DEB at reduced prices and serve as clearance    stores for slow-moving inventory. One hundred and sixty-three of the DEB stores    contain plus-size departments. We also operate six apparel retail stores under    the name “Tops ‘N Bottoms.” The Tops ‘N Bottoms stores    sell moderately priced men’s and women’s apparel. Thirteen of the    DEB stores contain Tops ‘N Bottoms departments.

**Consolidation:**    Our consolidated financial statements include the accounts of the Company    and our subsidiaries, after elimination of all intercompany transactions and    accounts. 

**Management Estimates:**    The preparation of the consolidated financial statements in conformity with    accounting principles generally accepted in the United States requires management    to make estimates and assumptions that affect the reported amounts of assets    and liabilities and disclosure of contingent assets and liabilities at the    date of the financial statements and the reported amounts of revenues and    expenses during the reporting period. Actual results could differ from those    estimates. 

**Marketable Securities**:    Marketable securities represent investments in auction market debt instruments    issued primarily by student loan financing entities. These securities, which    trade on a par-in, par-out basis provide for interest rate resets every 35    days. They are classified as available for sale and stated at fair value.    Interest income is recognized when earned.

**Inventories:**    Merchandise inventories are stated at the lower of cost (first-in, first-out    method) or market, as determined by the retail inventory method.

**Property, Plant    and Equipment:** Depreciation and amortization are computed    using the straight-line method based upon estimated useful lives of the assets.    Leasehold improvements are depreciated over the lesser of ten years or the    remaining term of the lease. Furniture and equipment is depreciated over the    lesser of seven years or the remaining term of the lease. For software developed    for internal use, all external direct costs for materials and services and    certain internal payroll and fringe benefits are capitalized in accordance    with Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer    Software Developed or Obtained for Internal Use.” At January 31, 2006,    approximately $116,000 has been capitalized relating to development of    software for our new point-of-sale system. There were no similar amounts recorded    as of January 31, 2005. Gain or loss on disposition of property, plant and    equipment is included in other income.

Property, plant and equipment    are reviewed for impairment whenever events or changes in circumstances indicate    that the carrying amount of an asset may not be recoverable. When such events    or circumstances arise, an estimate of the future undiscounted cash flows    relating to the asset is compared to the asset’s carrying value to determine    if an impairment exists pursuant to the requirements of Statement of Financial    Accounting Standards (“SFAS”) No. 144, “Accounting for the    Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).    If the asset is determined to be impaired, the impairment loss is measured    based on the excess of its carrying value over its fair value. No impairment    charges were recorded during fiscal 2006. During fiscal 2005 and 2004, we    recognized $176,000 and $181,000, respectively, in impairment charges    related to unprofitable stores. These amounts are included in depreciation    and amortization in the accompanying consolidated statement of operations.

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**Other Assets:** We are the assignee of policies insuring the lives    of our Chief Executive Officer and his wife and our Executive Vice President    and his wife. Together with the policies’ cash surrender values, these    assignments secure repayment of policy premiums we paid for these policies.    No premium payments have been made since the fiscal year ended January 31,    1999. The amount of premiums we paid total $1,712,233. This amount is    included in Other Assets in the accompanying consolidated balance sheets.    

**Lease Accounting**:    Accounting for store leases commences on the date we take possession of the    leased space, which generally is one month prior to lease commencement. Landlord    allowances are recorded as deferred lease credits. These amounts are amortized    as a reduction of rent expense over the initial term of the lease, commencing    with the date of possession.

Certain store leases provide    for predetermined escalations in future minimum annual rentals. The pro rata    portion of future minimum rent escalations is included in the consolidated    statements of operations as a component of cost of sales, including buying    and occupancy costs and in the consolidated balance sheets as a component    of deferred lease credits. 

**Revenue Recognition:**Revenue from merchandise sales is net of returns and    allowances and excludes sales tax. The provisions of the SEC Staff Accounting    Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial    Statements,” (as amended by SAB 104) have been applied, and as a result,    a reserve is provided for estimated future sales returns that is based on    an analysis of actual returns received following the end of each fiscal period.    We also defer the recognition of layaway sales to the date of delivery. 

**Cost of Sales:**    Cost of sales includes the cost of merchandise, buying (including freight    costs) and occupancy costs. The cost of handling merchandise is included in    selling and administrative costs. 

**Stock-based Compensation    Plans:**In December 2002, the Financial Accounting    Standards Board (“FASB”) issued SFAS No. 148, "Accounting for Stock-Based    Compensation—Transition and Disclosure" ("SFAS 148"). SFAS 148 amends    SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide    alternative methods for a voluntary transition to the fair-value method of    accounting for stock-based employee compensation. SFAS 148 also amends the    disclosure provisions of SFAS 123 and Accounting Principles Board ("APB")    Opinion No. 28, “Interim Financial Reporting,” to require disclosure    in the summary of significant accounting policies of the effects of an entity’s    accounting policy with respect to stock-based employee compensation on reported    net income and earnings per share in annual and interim financial statements.    The adoption of the standard was effective for fiscal years and interim periods    beginning after December 15, 2002. Rather than adopt the fair-value method    of accounting for stock-based compensation, we chose to continue accounting    for such items using the intrinsic value method. As required, we did adopt    the disclosure provisions of this standard. 

In February 2002, we adopted    the Deb Shops, Inc. Incentive Stock Option Plan as Amended and Restated Effective    January 1, 2002 (the “Plan”). The Plan is more fully described in    Note G. Through January 31, 2006 we continued to use the accounting method    under APB Opinion No. 25, “Accounting for Stock Issued to Employees,”    and related interpretations for the Plan. Under APB Opinion No. 25, generally,    when the exercise price of our stock options equals the market price of the    underlying stock on the date of the grant, no compensation expense is recognized.    The following table illustrates the effect on net income and earnings per    share if we had applied the fair value recognition provisions of SFAS No.    123, to all stock-related compensation.

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For purposes of pro forma    disclosures, the estimated fair value of the stock options under the Plan    is amortized to expense over their vesting periods. 

|                                                  | **Year      Ended January 31,** |           |
|-------------------------------------------------------|---------------------------------|----------------|
|                                                  |                                 |           |
|                                                  | **2006**                        |           | **2005** |   | **2004** |   |
|                                                  |                                 |           |  |   |  |   |
| Net      income as reported                           | **$**                       | **25,290,304** |  | **$** | **17,943,930** |  | **$** | **12,600,972** |  |
| Stock-based      employee compensation cost           |                                 | **(222,921**   | **)** |  | **(662,316** | **)** |  | **(2,061,296** | **)** |
|                                                  |                                 |                |  |  |  |  |
| Pro      forma net income                             | **$**                       | **25,067,383** |  | **$** | **17,281,614** |  | **$** | **10,539,676** |  |
|                                                  |                                 |                |  |  |  |  |
| Basic      net income per common share, as reported   | **$**                       | **1.79**       |  | **$** | **1.30** |  | **$** | **0.92** |  |
| Pro forma      basic net income per common share      | **$**                       | **1.77**       |  | **$** | **1.25** |  | **$** | **0.77** |  |
|                                                  |                            |           |  |   |   |  |   |   |  |
| Diluted      net income per common share, as reported | **$**                       | **1.78**       |  | **$** | **1.30** |  | **$** | **0.92** |  |
| Pro forma      diluted net income per common share    | **$**                       | **1.76**       |  | **$** | **1.25** |  | **$** | **0.77** |  |

**Statements of    Cash Flows:** We consider all highly liquid investments    with a maturity of less than three months when purchased to be cash equivalents.    Included in cash and cash equivalents at January 31, 2006 and January 31,    2005 is $22,362,000 and $26,051,000, respectively, of investments    in money market mutual funds. These investments are carried at cost, which    approximates market. 

**Recent Accounting    Pronouncements:**On December 16, 2004 the FASB issued    FASB Statement No. 123(R), “Share-Based Payment” (“FAS 123    (R)”). FAS 123(R) revised FASB Statement No. 123, “Accounting for    Stock-Based Compensation” (“FAS 123”) and requires companies    to expense the fair value of employee stock options and other forms of stock-based    compensation. FAS 123(R) must be adopted no later than for fiscal years beginning    after June 15, 2005. 

**– B – RESTATEMENT  OF FINANCIAL STATEMENTS**

During January 2005, as    a result of the publicity on the restaurant industry financial statement restatements    related to leases, we commenced a review of certain of our accounting policies    related to leases. In February 2005, the Office of the Chief Accountant of    the Securities and Exchange Commission ("SEC") issued a letter to the American    Institute of Certified Public Accountants expressing its views regarding certain    operating-lease-related accounting issues and their application under generally    accepted accounting principles in the United States of America ("GAAP"). Based    on our internal review, and after consultation with the Audit Committee of    our Board of Directors and predecessor independent registered public accounting    firm, as initially reported in our fiscal 2005 Annual Report on Form 10-K/A,    we restated our financial statements for years prior to fiscal 2005 to correct    our accounting for landlord allowances, calculation of straight-line rent    expense, recognition of rent holiday periods, and depreciation of leasehold    improvements for our retail stores. 

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In prior years, we classified    our investments in auction rate certificates as cash and cash equivalents.    During fiscal 2005, additional clarification was provided regarding the financial    statement classification of this type of investment. Pursuant to this guidance,    auction rate securities are not to be classified as cash and cash equivalents.    As a result, as initially reported in our fiscal 2005 report on Form 10-K/A,    we restated the consolidated statement of cash flows for the year ended January    31, 2004 to reflect the purchase and sale activity within the investing activities    section of the consolidated statement of cash flows. This change had no effect    on current or total assets or net income. 

Details of the restatement    of our fiscal 2004 financial statements were reported in our fiscal 2005 Annual    Report on Form 10-K/A. 

**– C – MARKETABLE  SECURITIES**

Our investments in marketable    securities consist of auction market debt instruments issued principally by    state student loan financing entities. These instruments, which trade on a    par-in, par-out basis, provide interest-rate reset options on a revolving    35-day basis. Because we regularly liquidate our investments in these securities    for reasons including, among others, changes in market interest rates and    changes in the availability of and the yield on alternative investments, we    have classified these securities as available for sale.****The carrying values of these securities approximate    fair value. There were no realized gains or losses on these investments for    the years ended January 31, 2006, 2005 or 2004. Contractual maturities of    available for sale securities at January 31, 2006 consisted of $4,850,000    maturing between one and 10 years and $86,150,000 maturing after 10 years.    

**– D – EARNINGS  PER SHARE**

The table below sets forth    the reconciliation of the numerators and denominators of the basic and diluted    net income per common share computations: 

|                                  | **Year      Ended January 31,** |           |
|---------------------------------------|---------------------------------|----------------|
|                                  |                                 |           |
|                                  | **2006**                        |           | **2005** |   | **2004** |   |
|                                  |                                 |           |  |   |  |   |
| Net income                            | **$**                       | **25,290,304** |  | **$** | **17,943,930** |  | **$** | **12,600,972** |  |
| Dividends      on preferred stock     |                                 | **(55,200**    | **)** |  | **(55,200** | **)** |  | **(55,200** | **)** |
|                                  |                                 |                |  |  |  |  |
| **$**                             | **25,235,104**                  |                | **$** | **17,888,730** |  | **$** | **12,545,772** |  |
|                                  |                                 |           |  |  |  |  |
|                                       | **14,125,484**                  |                |  | **13,729,100** |  |  | **13,684,900** |  |
| Effect of      dilutive stock options |                                 | **69,594**     |  |  | **24,361** |  |  | **—** |  |
|                                  |                                 |                |  |  |  |  |
|                                       | **14,195,078**                  |                |  | **13,753,461** |  |  | **13,684,900** |  |
|                                  |                                 |                |  |  |  |  |

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**– E – INCOME TAXES**

Income tax provision consists    of the following components:

|                             |      | **Year      Ended January 31,** |       |
|----------------------------------|-----------|---------------------------------|------------|
|                                  |           |
|                             | **2006**  |                            | ** ** | **2005** |   |   | **2004** |
|                                  |           |                                 |            |  |  |
| **Current:**                     |           |                            |       | ** ** |   |   |   |   |  |
|           Federal | **$** | **12,676,000**                  |            | **$** | **8,749,000** |  | **$** | **6,585,000** |  |
|      State        |           | **2,781,000**                   |            |  | **2,058,000** |  |  | **1,150,000** |  |
|                                  |           |                                 |            |  |  |  |  |  |  |
|                                  |           | **15,457,000**                  |            |  | **10,807,000** |  |  | **7,735,000** |  |
| **Deferred:**                    |           |                                 |            |  |  |  |  |  |  |
|      Federal      |           | **(674,000**                    | **)**      |  | **(77,000** | **)** |  | **(420,000** | **)** |
|      State        |           | **(166,000**                    | **)**      |  | **(158,000** | **)** |  | **(320,000** | **)** |
|                                  |           |                                 |            |  |  |  |  |  |  |
|                                  |           | **(840,000**                    | **)**      |  | **(235,000** | **)** |  | **(740,000** | **)** |
|                                  |           |                                 |            |  |  |  |  |  |  |
|                                  | **$** | **14,617,000**                  |            | **$** | **10,572,000** |  | **$** | **6,995,000** |  |
|                                  |           |                                 |            |  |  |  |  |  |  |

A reconciliation    of our effective income tax rate with the statutory federal rate follows:

|                                                           |      | **Year      Ended January 31,** |        |
|----------------------------------------------------------------|-----------|---------------------------------|--------|
|                                                           |           |                                 |        |
|                                                           |      | **2006**                        |   |   | **2005** |   |   | **2004** |  |
|                                                           |           |                                 |        |  |  |  |  |  |  |
| Tax provision      at statutory rate                           | **$** | **13,968,000**                  |        | **$** | **9,981,000** |  | **$** | **6,859,000** |  |
| State income      taxes, net of federal incometax      benefit |           | **1,826,000**                   |        |  | **1,094,000** |  |  | **413,000** |  |
| Permanent      items, primarily tax exemptinterest      income |           | **(991,000**                    | **)**  |  | **(607,000** | **)** |  | **(430,000** | **)** |
| Other                                                          |           | **(186,000**                    | **)**  |  | **104,000** |  |  | **153,000** |  |
|                                                           |           |                                 |        |  |  |  |  |  |  |
|                                                                | **$** | **14,617,000**                  |        | **$** | **10,572,000** |  | **$** | **6,995,000** |  |
|                                                                |           |                                 |        |  |  |  |  |  |  |

 Deferred income taxes    reflect the future tax consequences of differences between the tax bases of    assets and liabilities and their financial reporting amounts. The components    of deferred tax assets and liabilities are as follows:

|                                                                                                       |      | **January      31,** |   |
|------------------------------------------------------------------------------------------------------------|-----------|----------------------|--------|
|                                                                                                            |           |                      |        |
|                                                                                                       |      | **2006**             |   |   | **2005** |   |
|                                                                                                       |           |                      |   |  |  |   |
| Deferred      tax assets:                                                                                  |           |                      |        |  |  |  |
|             Depreciation      and amortization | **$** | **8,122,000**        |        | **$** | **7,322,000** |  |
|             Accrued      expenses and other    |           | **866,000**          |        |  | **529,000** |  |
|             Uniform      cost capitalization   |           | **750,000**          |        |  | **669,000** |  |
|             Deferred      lease credits        |           | —              |        |  | **101,000** |  |
|                                                                                                       |           |                      |   |  |  |   |
|                                                                                                            |           | **9,738,000**        |        |  | **8,621,000** |  |
| Deferred      tax liabilities:                                                                             |           |                      |        |  |  |  |
|             Prepaid      expenses              |           | **(436,000**         | **)**  |  | **(288,000** | **)** |
|             Deferred      lease credits        |           | **(341,000**         | **)**  |  | — |  |
|                                                                                                       |           |                      |   |  |  |   |
|                                                                                                            |           | **(777,000**         | **)**  |  | **(288,000** | **)** |
|                                                                                                       |           |                      |   |  |  |   |
|                                                                                                            | **$** | **8,961,000**        |        | **$** | **8,333,000** |  |
|                                                                                                            |           |                      |        |  |  |  |

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**– F – LEASES**

 Initial lease terms for    all of our retail apparel stores range from 15 to 20 years, including renewal    options. In most instances, we pay real estate taxes, insurance and maintenance    costs on the leased properties and contingent rentals based upon a percentage    of sales, as defined in the lease agreements.

Our warehouse and office    building is leased from a partnership whose partners include three of our    directors, including the President and Executive Vice President. The original    expiration date was June 14, 2002; however, the lease was amended to extend    its term through June 14, 2007. Rent expense recognized in conjunction with    this lease was $550,000 for fiscal years 2006, 2005 and 2004, respectively.

 Future minimum rental    commitments for all non-cancelable leases at January 31, 2006 are as follows:    

| ** **                            | ** ** | **Operating**   |   |
|---------------------------------------|------------|-----------------|--------|
| **Year      Ending January 31,**      | ** ** | **Leases**      |   |
|                                       |            |                 |   |
| 2007                                  | **$**  | **25,544,000**  |   |
| 2008                                  |            | **21,502,000**  |   |
| 2009                                  |            | **18,924,000**  |   |
| 2010                                  |            | **16,263,000**  |   |
| 2011                                  |            | **13,642,000**  |   |
| Thereafter                            |            | **41,049,000**  |   |
|                                  |            |                 |   |
| Total      minimum rental commitments | **$**  | **136,924,000** |   |
|                                  |            |                 |   |

Rent expense incurred under    operating leases includes the following:

|                                |      | **Year      Ended January 31,** |   |
|-------------------------------------|-----------|---------------------------------|--------|
|                                |           |                            |
|                                |      | **2006**                        |   |   | **2005** |   |   | **2004** |   |
|                                |           |                                 |   |  |  |   |  |  |   |
| Base rent                           | **$** | **26,633,000**                  |        | **$** | **26,413,000** |  | **$** | **26,006,000** |  |
| Contingent      rent based on sales |           | **2,418,000**                   |        |  | **2,142,000** |  |  | **1,975,000** |  |
| Landlord      allowances recognized |           | **(1,367,000**                  | **)**  |  | **(1,119,000** | **)** |  | **(979,000** | **)** |
|                                |           |                                 |   |  |  |   |  |  |   |
| Total rent      expense             | **$** | **27,684,000**                  |        | **$** | **27,436,000** |  | **$** | **27,002,000** |  |
|                                |           |                                 |   |  |  |   |  |  |   |

**– G – STOCK  OPTION PLAN**

 In February 2002, we adopted    the Deb Shops, Inc. Incentive Stock Option Plan as Amended and Restated Effective    January 1, 2002 (the “Plan”). Our Board of Directors, together with    our Stock Option and Compensation Committees, administer the Plan. Under the    Plan, options to purchase up to 3,000,000 shares of our common stock, par    value $.01 per share may be granted to employees or non-employee directors    on the basis of contributions to our operations. The price payable for the    shares of common stock under each stock option are fixed by the Board or the    applicable Committee at the time of grant, but will be no less than 100% of    the fair market value of our common stock at the time the stock option is    granted. Options are exercisable commencing one year after the date of grant,    subject to such vesting requirements as the Board or the applicable Committee    may specify. The outstanding options expire through November 2012. There were    868,500 options reserved for future grant under the Plan as of January 31,    2006. 

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A summary of our stock    option activity and related information for the fiscal years ended January    31 follows: 
    **Weighted    Average**  **Options**  **Exercise Price**    Outstanding,      February 1, 20031,381,500$ 23.77                     Granted45,000 23.75                     Cancelled(46,500) 23.75    Outstanding,      January 31, 20041,380,000 23.77                     Granted15,000 23.75                     Exercised(77,111) 23.75                     Cancelled(123,500) 23.75    Outstanding,      January 31, 20051,194,389 23.77                     Granted15,000 25.28                     Exercised(1,061,389) 23.75    Outstanding,      January 31, 2006148,000$ 23.91    
The remaining contractual    life of the outstanding options ranges from 1.1 to 6.9 years. Of the 148,000    options outstanding at January 31, 2006, 63,000 were exercisable at an exercise    price of $23.75. 

The fair value of each option    grant is estimated on the date of grant using the Black-Scholes option-pricing    model. The model used the following assumptions:
  **Fiscal      2006 Grants**  **Fiscal      2005 Grants**  **Fiscal      2004 Grants**     Three    to seven    years  Five years  Five years Expected life      Risk-free      interest rate5.0%4.3%4.3%Volatility34.7%34.7%34.7%Dividend      yield2.0%2.2%2.6%Estimated      fair value of options granted$7.94$6.47$4.69
**– H – COMMITMENTS  AND CONTINGENCIES**

 We have an unsecured line    of credit in the amount of $20,000,000. As of January 31, 2006, $507,000    was outstanding for letters of credit supporting the purchase of inventory.    

One of our employees has    an employment agreement that provides for, among other things, a base salary    plus a bonus of 4% of the improvement in the operating results of our DEB    business over a base-year amount. No bonuses were earned in any of the fiscal    years ended January 31, 2006, 2005 or 2004. This agreement is applicable through    fiscal 2007.

 We have a defined contribution    plan that covers all employees over the age of 21 who have been employed for    at least 12 months, during which at least 1,000 hours of eligible service    have been completed. We match employee contributions at the rate of 50% of    the first 6% of participant-elected pretax salary deferral. The plan is subject    to the provisions of the Employee Retirement Income Security Act of 1974.    We contributed $232,000, $214,000 and $181,000 to the plan in    fiscal 2006, 2005 and 2004, respectively. 

 We are subject to legal    proceedings, employment issues and claims that arise in the ordinary course    of our business. In the opinion of management, after consultation with outside    legal counsel, the ultimate disposition of such proceedings is not expected    to have a material adverse effect on our consolidated financial position or    results of our operations. 

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**– I – QUARTERLY FINANCIAL INFORMATION  (Unaudited)**(amounts in thousands, except per share data)
 **        First**** ****       Second**** ****       Third**** ****       Fourth**   **Quarter**** ****       Quarter**** ****       Quarter**** ****       Quarter**   Net      sales              2006**$****77,485** **$****75,966** **$****83,126** **$****88,386****(1)**               2005**$****73,081** **$****72,831** **$****75,307** **$****82,560****(1)**  Cost      of sales, including buying and occupancy costs              2006**$****55,683** **$****46,934** **$****59,705** **$****49,358**              2005**$****53,660** **$****47,152** **$****54,844** **$****47,182**Net income              2006**$****2,760** **$****6,590** **$****3,090** **$****12,850****(1)**               2005**$****879** **$****4,643** **$****1,828** **$****10,594****(1)**  Basic      net income per share              2006**$****0.20** **$****0.47** **$****0.21** **$****0.90**              2005**$****0.06** **$****0.34** **$****0.13** **$****0.77** Diluted      net income per share              2006**$****0.20** **$****0.46** **$****0.21** **$****0.89**              2005**$****0.06** **$****0.34** **$****0.13** **$****0.76** Cash      dividends declared per common share              2006**$****0.125** **$****6.125** **$****0.125** **$****0.125**              2005**$****0.125** **$****0.525** **$****0.125** **$****0.125**
Amounts are    computed independently for each of the quarters presented and therefore may    not sum to totals for each of the years.

(1)    During fiscal 2006, approximately 27% and 51% of our net sales and net income    occurred during the fourth quarter, as compared to 27% and 59% of our net    sales and net income for fiscal 2005. The fourth quarter includes the Christmas    selling season. The decrease in the percentage of our fiscal 2006 fourth quarter    net income compared to the fourth quarter of fiscal 2005 was due to the increase    in net income for the first three quarters of fiscal 2006 versus the comparable    period in fiscal 2005. 

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

None. 

**Item 9A. Controls  and Procedures**

**Conclusion Regarding  the Effectiveness of Disclosure Controls and Procedures**

Our chief executive officer    and chief financial officer, with the participation of other members of management,    have evaluated the effectiveness of our disclosure controls and procedures    (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as    amended) as of the end of the period covered by this report (the “Evaluation    Date”) and, based on that evaluation, concluded that, as of the Evaluation    Date, our disclosure controls and procedures were effective to ensure that    information that is required to be disclosed in our reports under the Securities    Exchange Act of 1934 is recorded, processed, summarized and reported within    the time periods specified in the SEC’s rules and forms, and that such    information is accumulated and communicated to management, including our chief    executive officer and chief financial officer, as appropriate, to allow timely    decisions regarding required disclosure. 

**Management's Annual  Report on Internal Control Over Financial Reporting and Attestation Report of  the Independent Registered Public Accounting Firm**

Management's Annual Report    on Internal Control Over Financial Reporting as of January 31, 2006 appears    on page 18 of this Annual Report on Form 10-K, and is incorporated herein    by reference. The Report of our Independent Registered Public Accounting Firm    on Internal Control Over Financial Reporting appears on page 19 of this Annual    Report on Form 10-K, and is incorporated herein by reference. 

**Changes in Internal  Control over Financial Reporting**

There has not been any change    in our internal control over financial reporting during the quarter ended    January 31, 2006 that has materially affected or is reasonably likely to materially    affect our internal control over financial reporting. 

**Item 9B. Other Information**

 None.

**PART  III**

**Item 10. Directors  and Executive Officers of the Registrant**

We have adopted a Code of    Business Conduct & Ethics that applies to our directors, officers and    employees, including our principal executive officer, principal financial    officer and controller. Our Code of Business Conduct & Ethics is available    on our website at www.debshops.com. Unless disclosure in a Current Report on    Form 8-K is otherwise required under NASDAQ, SEC or other applicable rules    and regulations, we intend to satisfy the disclosure requirements under Item    5.05 of Form 8-K regarding an amendment or waiver from a provision of the    Code of Business Conduct & Ethics that applies to our principal executive    officer, principal financial officer, controller or persons performing similar    functions and that relates to certain topics by posting such information on    our website at www.debshops.com.

 Except as set forth under    the caption “Executive Officers of the Registrant” in Part I of    this Annual Report on Form 10-K, the information required by this item is    contained in the 2006 Proxy Statement under the captions “Election of    Directors,” “Corporate Governance – Audit Committee,”    “Procedures for Nominating or Recommending for Nomination Candidates    for Director” and “Section 16(a) Beneficial Ownership Reporting    Compliance” and is hereby incorporated herein by reference. 

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**Item 11. Executive Compensation**   

 The required information    with respect to executive compensation is contained in the 2006 Proxy Statement    under the captions “Election of Directors,” “Comparison of    Five Year Cumulative Total Shareholder Returns” and “Executive Compensation,”    which is incorporated in this Annual Report on Form 10-K by reference. 

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

 The required information    with respect to security ownership of certain beneficial owners and management    is contained in the 2006 Proxy Statement under the caption “Security    Ownership of Certain Beneficial Owners and Management,” which is incorporated    in this Annual Report on Form 10-K by reference. 

The following table provides    information as of January 31, 2006 with respect to compensation plans (including    individual compensation arrangements) under which our equity securities are    authorized for issuance. 

**Equity  Compensation Plan Information**
      **Number of securities**       **remaining available      for**       **future issuance      under**  **Number of securities      to**  **Weighted-average** **equity compensation**  **be issued upon      exercise**  **exercise price      of** **plans (excluding**  **of outstanding      options,**  **outstanding      options,** **securities      reflected in**  **warrants and      rights**  **warrants and      rights** **column (a))** **Plan      Category****(a)**  **(b)** **(c)**    Equity      compensation plans approved by security holders148,000 $23.91 868,500   Equity compensation      plans not approved by security holders—— —     Total148,000 $23.91 868,500     
**Item 13. Certain  Relationships and Related Transactions**  

 The required information    with respect to certain relationships and related transactions is contained    in the 2006 Proxy Statement under the caption “Transactions With Management    and Certain Business Relationships,” which is incorporated in this Annual    Report on Form 10-K by reference. 

**Item 14. Principal  Accountant Fees and Services**

The required information       with respect to principal accountant fees and services is contained in      the    Company’s 2006 Proxy Statement under the caption “Relationships    with Independent Public Accountants,” which is incorporated in this    Annual Report on Form 10-K by reference. 

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**PART  IV**

**Item 15. Exhibits  and Financial Statement Schedules**

**Financial Statements  and Financial Statement Schedules**
**Document****Page(s)**Management’s      report on internal control over financial reporting18  Reports      of independent registered public accounting firms19-21 Consolidated      statements of operations for the years ended January 31, 2006, 2005 and      200422 Consolidated      balance sheets as of January 31, 2006 and 200523       Consolidated statements of shareholders’ equity for the years ended      January 31, 2006, 2005 and 200424 Consolidated      statements of cash flows for the years ended January 31, 2006, 2005 and      200425  Notes      to consolidated financial statements26-32 Selected      quarterly financial information (unaudited) for the years ended January      31, 2006 and 200533
All schedules are omitted    because they are not applicable, not required, or because the required information    is not material, or is included in the consolidated financial statements or    notes thereto. 

**Exhibits**

 The following exhibits    are included with this report or have been previously filed with the Securities    and Exchange Commission pursuant to the requirements of the Acts administered    by the Commission. Each exhibit previously filed is identified by the reference    following the listing of such exhibit, and each is incorporated herein by    such reference. 

 Exhibits identified with    an asterisk below denote a management contract or executive compensatory plan    or arrangement. 
 **Exhibit No.** **Description      of Document**   3-1 Restated Articles of      Incorporation of the Company, as amended through May 29, 1984 (2003 Form      10-K, Exhibit 3-1)   3-2 By-Laws of the Company,      as amended through February 2, 2004 (2004 Form 10- K, Exhibit 3-2)   10-1 Lease Agreement for      property located at 9401 Blue Grass Road, Philadelphia, Pennsylvania 19114      (Registration No. 2-82222, Exhibit 10-1)
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 **Exhibit No.** **Description      of Document**   10-1.1 Amendment      of Lease Agreement dated January 3, 1999 for propertylocated      at 9401 Blue Grass Road, Philadelphia, Pennsylvania 19114 (2005 Form 10-K,      Exhibit 10-1.1)   10-2.1 *      Life insurance policy for Marvin Rounick and Judy Rounick (2003 10-K, Exhibit10-2.1)   10-2.2 *      Split Dollar Insurance Agreement dated July 31, 1987 between the Companyand Jack A. Rounick and      Stuart Savett, Trustees under the Rounick Family Irrevocable Insurance Trust      dated October 27, 1986 (2003 Form 10-K Exhibit 10-2.2)   10-2.3 *      Collateral Assignment dated July 31, 1987 from Jack A. Rounick and StuartSavett, Trustees under      the Rounick Family Irrevocable Insurance Trust dated October 27, 1986, as      assignor, and the Company, as assignee (2003 Form 10-KExhibit 10.2-3)   10-2.4 *      Agreement of Settlement and General Release dated May 5, 1998 betweenJack A. Rounick and Stuart      Savett, Trustees under the Rounick Family Irrevocable Insurance Trust dated      October 27, 1986 and the Manufacturers Life Insurance Company (Form 10-Q      for the quarter ended October 31, 1999, Exhibit 10-14.4)   10-2.5 *      Amended and Restated Split Dollar Insurance Agreement dated July 31, 1998between the Company and      Jack A. Rounick and Stuart Savett, Trustees under the Rounick Family Irrevocable      Insurance Trust dated October 27, 1986 (Form 10-Q for the quarter ended      October 31, 1999, Exhibit 10-14.5)    10-2.6 *      Amended and Restated Collateral Assignment dated July 31, 1998 from Jack      A. Rounick and Stuart Savett, Trustees under the Rounick Family Irrevocable      Insurance Trust dated October 27, 1986 (Form 10-Q for the quarter ended      October 31, 1999, Exhibit 10-14.6)    10-3.1 *      Life Insurance Policy for Warren Weiner and Penny Weiner(2003      Form 10-K Exhibit 10-3.1)   10-3.2 *      Split Dollar Insurance Agreement dated July 31, 1987 betweenthe      Company and Barry H. Frank and Robert Shein, Trustees under the Weiner Family      Irrevocable Insurance Trust dated October 27, 1986 (2003 Form 10-K Exhibit      10-3.2)   10-3.3 *      Collateral Assignment dated July 31, 1987 from Barry H. Frankand      Robert Shein, Trustees under the Weiner Family Irrevocable Insurance Trust      dated October 27, 1986, as assignor, and the Company, as assignee (2003      Form 10-K Exhibit 10-3.3)   10-3.4 *      Agreement of Settlement and General Release dated May 5, 1998between      Barry H. Frank and Robert Shein, Trustees under the Weiner Family Irrevocable      Insurance Trust dated October 27, 1986 and the Manufacturers Life Insurance      Company (Form 10-Q for the quarter ended October 31, 1999, Exhibit 10-14.4)   10-3.5.1 *      Amended and Restated Split Dollar Insurance Agreement dated July 31, 1998between the Company and      Barry H. Frank and Robert Shein, Trustees under the Weiner Family Irrevocable      Insurance Trust dated October 27, 1986 (Form 10-Q for the quarter ended      October 31, 1999, Exhibit 10-14.5)
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 **Exhibit No.** **Description of      Document**   10-3.6 * Amended and Restated      Collateral Assignment dated July 31, 1998 from Barry H.      Frank and Robert Shein, Trustees under the Weiner Family Irrevocable Insurance Trust dated October      27, 1986 (Form 10-Q for the quarter ended October      31, 1999, Exhibit 10-14.6)     10-4 * Deb Shops, Inc. Premium      Conversion Plan (2003 Form 10-K, Exhibit 10-4)     10-4.1 * Amendment No. I to      Deb Shops, Inc. Premium Conversion Plan (1998 Form 10-K, Exhibit 10-19.1)   10-5.1 * Deb Shops, Inc. Incentive      Stock Option Plan, As Amended and Restated Effective January 1, 2002 (2002      Form 10-K, Exhibit 10-5.1)   10-6 * Employment Agreement      dated December 20, 2001 between the Company and Allan Laufgraben (2002 Form      10-K, Exhibit 10-6)   10-7 Agreement and General      Release dated April 23, 2004 between the Company and Barry Vesotsky (Form      10-Q for the quarter ended April 30, 2004, Exhibit 10-1)   10-8 * Employment Agreement      by and between the Company and John DeAngelis dated September 26, 2005 (Form      8-K filed September 29, 2005, Exhibit 10-1)   21 Subsidiaries      of the Company     23.1 Consent      of Independent Registered Public Accounting Firm     23.2 Consent      of Independent Registered Public Accounting Firm     31.1 Certification      by Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities      Exchange Act of 1934   31.2 Certification      by Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities      Exchange Act of 1934   32.1 Certification      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350     32.2 Certification      of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350
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**SIGNATURES**

Pursuant to the requirements    of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant    has duly caused this Report to be signed on its behalf by the undersigned,    thereunto duly authorized in the City and County of Philadelphia, Commonwealth    of Pennsylvania, on April 10, 2006.
   DEB SHOPS,      INC.      (Registrant)        By: /s/ Marvin Rounick        Marvin Rounick, President          
Pursuant to the requirements    of the Securities Exchange Act of 1934, this Report has been signed by the    following persons in the capacities and on the dates indicated.
   /s/      Marvin RounickApril 10,      2006Marvin      Rounick, President, Chief Executive      Officer and Director (Principal      Executive Officer)        /s/ Warren WeinerApril 10,      2006Warren      Weiner, Executive Vice President, Secretary,      Treasurer and Director         /s/ Jack RounickApril 10,      2006Jack      A. Rounick, Assistant Secretary and Director         /s/ Ivan InerfeldApril 10,      2006Ivan      Inerfeld, Director         /s/ Barry H. FeinbergApril 10,      2006Barry      H. Feinberg, Director         /s/ Barry H. FrankApril 10,      2006Barry      H. Frank, Esq., Director         /s/ Ned J. KaplinApril 10,      2006Ned      J. Kaplin, Director         /s/ Barry J. SussonApril 10,      2006Barry      J. Susson, CPA, Chief Financial Officer and Assistant      Secretary         /s/ Joan M. NolanApril 10,      2006Joan      M. Nolan, Controller
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