<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-K/A
                                [AMENDMENT NO.1]

(MARK ONE)

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

       For the fiscal year ended    January 31, 2005

                            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)


                  9401 BLUE GRASS ROAD, PHILADELPHIA, PA 19114
             -----------------------------------------------------
              (Address of principal executive offices and zip code)


       PENNSYLVANIA                                  23-1913593
  ------------------------               ---------------------------------
  (State of Incorporation)               (IRS Employer Identification No.)


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

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

    Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

                                    Yes  |X|    No |_|

    As of March 31, 2005, 13,762,011 shares of the registrant's Common Stock,
par value $.01 per share, were outstanding. As of July 30, 2004 (the last
business day of the registrant's second fiscal quarter), the aggregate market
value of the registrant's Common Stock, par value $.01 per share, held by non-
affiliates was approximately $110,180,000.

                       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 11, 2005 -- incorporated in Part III.

<PAGE>

                                Deb Shops, Inc.
                Amendment No. 1 to the Annual Report of Form 10-K
                   For the Fiscal Year ended January 31, 2005
                                EXPLANATORY NOTE

    Deb Shops, Inc. (the "Company") is filing this Amendment No. 1 (the
"Amendment") to its Annual Report on Form 10-K for the fiscal year ended January
31, 2005, filed with the Securities and Exchange Commission on April 20, 2005,
to include Management's Annual Report on Internal Control over Financial
Reporting, as required by Item 308(a) of Regulation S-K and the Attestation
Report of the Company's Independent Registered Public Accounting Firm, as
required by Item 308(b) of Regulation S-K. The Amendment is being filed at this
time pursuant to the 45-day extension for the filing of Management's Annual
Report on Internal Control over Financial Reporting and the Attestation Report
of the Independent Registered Public Accounting Firm provided by the exemptive
order issued by the Securities and Exchange Commission in Release No. 34-50754.

    For the convenience of the reader, this Amendment includes all of the
information contained in the original report on Form 10-K. However, no attempt
has been made in this Amendment to modify or update the disclosures presented in
the original report on Form 10-K, except as required to reflect the Amendment
described above. This Amendment does not reflect events occurring after the
filing of the Form 10-K or modify or update those disclosures, including the
exhibits to the Form 10-K affected by subsequent events. Information not
affected by this Amendment is unchanged and reflects the disclosures made at the
time of the original filing of the Form 10-K on April 20, 2005. Accordingly, the
Amendment should be read in conjunction with the Company's filings made with the
Securities and Exchange Commission subsequent to the filing of the original Form
10-K. The following items have been modified or added as a result of this
Amendment:



   Part II -- Item 8    Financial Statements and Supplementary Data

                        Management's Annual Report on Internal Control
                        Over Financial Reporting

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

   Part II -- Item 9A   Controls and Procedures

   Exhibit 23.1         Consent of Independent Registered Public Accounting
                        Firm -- BDO Seidman, LLP

   Exhibit 23.2         Consent of Independent Registered Public Accounting
                        Firm -- Ernst & Young, LLP

   Exhibit 31.1         Certification by President and Chief Executive Officer

   Exhibit 31.2         Certification by Chief Financial Officer

   Exhibit 32.1         Certification of Periodic Report -- Chief Executive
                        Officer

   Exhibit 32.2         Certification of Periodic Report -- Chief Financial
                        Officer


<PAGE>

FORWARD-LOOKING STATEMENTS

    Deb Shops, Inc. (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, the Company's 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 the Company's other filings with the Securities and
Exchange Commission ("SEC"). The Company assumes no obligation to update or
revise its 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 1

ITEM 1. BUSINESS

GENERAL

    The Company operates 323 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. The Company operates 314 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, the Company operates 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
forty of the DEB stores contain plus-size departments. The Company also operates
six apparel retail stores under the name "Tops `N Bottoms." The Tops `N Bottoms
stores sell moderately priced men's and women's apparel. Seventeen of the DEB
stores contain Tops `N Bottoms departments. Store information is as of January
31, 2005 unless otherwise indicated.


MERCHANDISING AND MARKETING

    DEB specializes in junior-sized merchandise and offers 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 DEB's 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. 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.

    The Company purchases merchandise in volume, sells at popular prices, and
has 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.

                                       -1-

<PAGE>

    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 the Company to analyze market trends and changing
store needs. Since merchandising statistics are available on a daily basis, the
Company can identify slow-moving merchandise and respond to customer buying
trends when making repurchase decisions and markdown adjustments. This assists
the Company in its effort to maintain current and fresh merchandise in its
stores.

    The Company experiences the normal seasonal pattern of the retail apparel
industry with its 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
the Company's policy of carrying a minimal amount of seasonal merchandise over
from one merchandising season to another. Most of the Company's seasonal
merchandise is liquidated through this process. At the end of each season, any
remaining seasonal merchandise is transferred to the Company's CSO stores.


STORES

    During the fiscal year ended January 31, 2005 ("fiscal 2005"), the Company
opened eight stores, closed 17 stores and remodeled 11. Seven of the new stores
have plus-size departments. The Company also added plus-size departments to nine
existing DEB stores. The Company currently plans to open five to ten new stores
in the fiscal year ending January 31, 2006 ("fiscal 2006"), the majority of
which are expected to have plus-size departments. The Company also expects to
remodel 10-15 locations. The Company is currently scheduled to close one store
in the first half of fiscal 2006. The Company plans to continue to carefully
evaluate the profitability of individual stores and close those stores that it
believes cannot meet a level of profitability deemed acceptable by the Company.
This profitability review process undertaken during fiscal 2005 resulted in the
closing of the aforementioned 17 locations.

    The following table shows store openings and closings for the last five
fiscal years:
<TABLE>
<CAPTION>
                                              YEAR ENDED JANUARY 31,
                                  ----------------------------------------------
                                   2005      2004      2003      2002      2001
                                  ------    ------    ------    ------    ------
<S>                                <C>   <C>   <C>   <C>   <C>
Open at beginning of fiscal year     332       327       309       291       285
Opened during fiscal year              8        13        23        23        13
Closed during fiscal year            (17)       (8)       (5)       (5)       (7)
                                  ------    ------    ------    ------    ------

Open at end of fiscal year           323       332       327       309       291
                                  ======    ======    ======    ======    ======

</TABLE>
    The Company's 323 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.
<TABLE>
<CAPTION>
               NUMBER
   REGION    OF STORES
-----------  ---------

<S>                <C>
Midwest            144
East               110
West                35
New England         23
South               11
             ---------

 Total             323
             =========

</TABLE>
                                       -2-

<PAGE>

    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 occasionally 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 the Company's 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.


OPERATIONS

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

    The Company purchases its merchandise from a number of suppliers, both
domestic and foreign, and is not materially dependent on any one supplier. All
merchandise is shipped directly from vendors to the Company's central
distribution facility, where it is inspected before being shipped to individual
stores. The Company distributes its inventory by common carrier and leased
trucks.

    The responsibility for managing the Company's stores rests with the Director
of Store Operations and a staff of 42 employees consisting of an Assistant
Director of Store Operations and Regional and District Managers. A Regional
Manager is responsible for an average of five 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 44 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:
sportswear, dresses, coats, lingerie, hosiery, shoes and accessories.

    At January 31, 2005, the Company had approximately 3,700 employees, 61% of
whom were employed on a part-time basis. The Company has a collective bargaining
agreement with the United Paperworkers International Union, Philadelphia Local
286 ("UPIU") that expires on December 31, 2008. The UPIU represents
approximately 100 of the Company's warehouse employees. The Company considers
its 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 the Company's
competitors are considerably larger than the Company and have substantially
greater financial and other resources.

                                       -3-

<PAGE>

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


AVAILABLE INFORMATION

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

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

             Barry J. Susson, Chief Financial Officer
             Deb Shops, Inc.
             9401 Blue Grass Road
             Philadelphia, PA 19114

    The information on the Company's 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.


ITEM 2. PROPERTIES

    The Company leases all of its stores. The internal layout and fixtures of
each store are designed and constructed under contracts with third parties.

    Under most leases, the Company is 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, existing at January 31, 2005. In many cases, the Company has renewal
options.
<TABLE>
<CAPTION>
                     NUMBER OF
                       LEASES
   CALENDAR YEARS     EXPIRING
-------------------  ---------
        <S>                <C>
    2005 -- 2006            75
    2007 -- 2008            87
    2009 -- 2010            57
    2011 -- 2012            29
    2013 -- 2014            48
    2015 -- 2016            18
2017 and thereafter          9
                     ---------

       Total               323
                     =========

</TABLE>

    The Company leases its warehouse, distribution and office space, aggregating
280,000 square feet, pursuant to a lease that, as amended, 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 present stores, see Item 1.
Business -- Stores.

                                       -4-
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

    The Company is subject to legal proceedings, employment issues and claims
that arise in the ordinary course of its 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 the
Company's consolidated financial position or results of operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.


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 11, 2005.

    The executive officers of the Company, each of whom serves at the discretion
of the Board of Directors, are as follows:
<TABLE>
<CAPTION>
NAME              AGE  POSITION WITH COMPANY                                        OFFICER SINCE
-----             ---  ---------------------                                        -------------
<S>               <C>  <C>                                                                    <C>
Marvin Rounick     64  Director, President and Chief Executive Officer                       1973
Warren Weiner      61  Director, Executive Vice President, Secretary and Treasurer           1973
Allan Laufgraben   66  Senior Vice President, Merchandising                                  1995
Barry J. Susson    42  Chief Financial Officer                                               2003
Stanley A. Uhr     59  Vice President, Real Estate and Corporate Counsel                     1988
Stephen P. Smith   45  Vice President, Information Systems                                   1998
Joan M. Nolan      52  Controller                                                            1998

</TABLE>
    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 has been employed by the Company since February 2003, as
Chief Financial Officer. 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 has been employed by the Company since 1987. Since March
1988, he has served as Vice President, Real Estate 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.

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

                                       -5-

<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
        AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

    The Company's Common Stock is traded on the NASDAQ National Market under the
symbol: DEBS.

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

<TABLE>
<CAPTION>

2005              HIGH     LOW
----             ------  ------
<S>                <C>     <C>
First Quarter   $26.85  $20.20
Second Quarter  $26.00  $22.27
Third Quarter   $25.00  $22.05
Fourth Quarter  $27.52  $23.76

</TABLE>

<TABLE>
<CAPTION>

2004              HIGH     LOW
----             ------  ------
<S>                <C>     <C>
First Quarter   $20.01  $16.85
Second Quarter  $20.45  $18.64
Third Quarter   $20.09  $17.78
Fourth Quarter  $22.35  $18.90

</TABLE>
HOLDERS

    As of March 31, 2005, there were 187 record holders and approximately 2,057
beneficial holders of the Company's Common Stock.


DIVIDENDS

    The Company 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 first two quarters of fiscal 2004 was $0.10 and in each of the last two
quarters of fiscal 2004 and in each of the four quarters of fiscal 2005 was
$0.125. The Company also paid special dividends of $0.05 per share in the third
quarter of fiscal 2004 and $0.40 per share in the third quarter of fiscal 2005.
The Company currently intends to follow a policy of regular quarterly dividends,
subject to earnings, capital requirements and the operating and financial
condition of the Company, among other factors.


ISSUER PURCHASES OF EQUITY SECURITIES

    There were no repurchases of the Company's equity securities during the
fourth quarter of fiscal 2005.

                                       -6-
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

    The following selected financial data is derived from the consolidated
financial statements of the Company and have been restated to reflect
adjustments to the originally filed financial statements. These restatements are
discussed in "Note B. Restatement of Financial Statements" under Notes to
Consolidated Financial Statements included in Item 8. Financial Statements and
Supplementary Data of this Form 10-K. 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

<TABLE>
<CAPTION>
                                                                        YEAR ENDED JANUARY 31,
                                                   ----------------------------------------------------------------
(in thousands, except per share data)                2005        2004          2003          2002          2001
-------------------------------------              --------  ------------  ------------  ------------  ------------

                                                             (AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED)
<S>                                                     <C>           <C>           <C>           <C>           <C>
Net sales                                          $303,778      $298,646      $317,722      $307,582      $287,263
Gross margin                                        100,940        93,074       110,790       107,118        96,365
Operating income                                     26,200        18,234        38,653        32,676        32,428
Net income                                           17,944        12,601        25,284        23,223        23,560
Net income per common share -- basic                   1.30          0.92          1.85          1.71          1.76
Net income per common share -- diluted                 1.30          0.92          1.83          1.70          1.74
Weighted average shares outstanding -- basic         13,729        13,685        13,672        13,546        13,379
Weighted average shares outstanding -- diluted       13,753        13,685        13,815        13,629        13,519
Total assets                                        242,880       231,697       221,153       201,272       175,827
Capital lease obligation -- long-term                   ---           ---           ---           ---           301
Shareholders' equity                                188,911       181,547       176,186       156,311       136,479
Book value per share at year end                      13.73         13.27         12.87         11.47         10.13
Cash dividends declared per share of common stock      .900          .525          .425          .325          .200

</TABLE>

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 2005," "fiscal 2004," and "fiscal 2003," refer to the
Company's fiscal years ended January 31, 2005, 2004 and 2003, respectively. The
term "fiscal 2006" refers to the Company's fiscal year that will end on January
31, 2006.


RESTATEMENT OF FINANCIAL STATEMENTS

    As a result of the publicity on the restaurant industry financial statement
restatements related to leases, the Company commenced a review of certain of its
accounting policies related to leases during January 2005. Subsequently, on
February 7, 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 the
Company's internal review, and after consultation with the Audit Committee of
the Company's Board of Directors and predecessor independent registered public
accounting firm on April 19, 2005, the Company restated its financial statements
for years prior to fiscal 2005 to correct its accounting for landlord
allowances, calculation of straight-line rent expense, recognition of rent
holiday periods, and depreciation of leasehold improvements for its retail
stores.

                                       -7-
<PAGE>

    Certain of the Company's store leases contain provisions that enable the
Company or the landlord to terminate the lease if sales during a defined
measurement period fall below agreed-upon levels. The Company has historically
recorded rent expense on a straight-line basis, beginning with the lease
commencement date, which generally coincides with the store opening date,
through the early termination date. The period during which a store was prepared
for opening historically was excluded from the straight-line rent schedule.
Financial Accounting Standards Board ("FASB") Technical Bulletin 85-3 ("FTB
85-3"), "Accounting for Operating Leases with Scheduled Rent Increases," states,
however, that rent holidays should be recognized on a straight-line basis over
the lease term, which according to FASB Technical Bulletin 88-1, "Issues
Relating to Accounting for Leases ("FTB 88-1"), commences on the date the
Company is given the right to control the use of the leased property. Consistent
with this guidance, the Company has changed the period used for determining the
deferred rent calculation to commence on the date the Company began controlling
the use of the property (i.e. began preparing a store for opening) through the
initial non-cancelable life of the lease.

    Depreciation of leasehold improvements has historically been calculated
based upon the term of the lease. The Company has changed its accounting for
leasehold improvements to depreciate leasehold improvements over the lesser of
the term of the lease or 10 years. In addition, the Company has historically
accounted for tenant improvement allowances as a reduction of the cost of
leasehold improvements, resulting in lower depreciation expense, and reflected
the cash received within investing activities in the consolidated statement of
cash flows as a reduction of purchases of property, plant, and equipment. This
treatment was consistent whether the improvement allowance was provided in cash
or in the form of a rent abatement. FTB 88-1 requires that lease incentives such
as tenant allowances be recorded as a deferred liability, amortized over the
term of the lease and reflected as a reduction to rent expense. Previously,
amortization commenced on the date the store was opened and was reflected as a
reduction to depreciation and amortization. Consistent with the recording of
rent expense described above, the Company now amortizes tenant allowances
commencing on the date the Company has the right to control the use of the
leased property. Tenant allowances in the form of rent abatements were
historically charged to rent expense on a straight-line basis over the number of
months the rent was abated. Tenant allowances are now included as a component of
operating activities in the consolidated statement of cash flows.

     The effects of the adjustments relating to the above items include a
reduction to retained earnings of $1,647,000, net of tax, as of February 1, 2002
and decreases to net income of $166,000 or $0.01 per diluted share, and $205,000
or $0.01 per diluted share for fiscal 2004 and 2003, respectively.

     See Note B to Consolidated Financial Statements of this annual report on
Form 10-K for a summary of the effects of these changes on the consolidated
balance sheet as of January 31, 2004, as well as on the consolidated statements
of operations, changes in shareholders' equity and cash flows for fiscal 2004
and fiscal 2003. The discussion contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" gives effect to these
corrections.


OVERVIEW

    The Company operates 323 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. The Company operates 314 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. In addition, the Company operates 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 forty of
the DEB stores contain plus-size departments. The Company also operates six
apparel retail stores under the name "Tops `N Bottoms." The Tops `N Bottoms
stores sell moderately priced men's and women's apparel. Seventeen of the DEB
stores contain Tops `N Bottoms departments.

                                       -8-

<PAGE>

    During fiscal 2005, the Company made meaningful strides in improving
operating performance. Continued improvements in the Company's operating
platform allowed the Company to better leverage fixed costs and report
significant gains in net income and earnings per share in each quarter. Due in
large part to a reduction in markdowns as a percentage of sales, the Company's
gross margin increased 210 basis points to 33.2%, operating margin improved 250
basis points to 8.6% and net income and diluted earnings per share increased 43%
to $17.9 million and $1.30, respectively. The Company also continued its
expansion of the number of stores offering plus-sized merchandise, ending the
year with 140 plus-sized departments. The Company believes that its stores
offering both junior and plus-sized merchandise present more of a destination-
shopping environment for its customers. The Company also closed seventeen
under-performing locations, which is expected to provide improvement in gross
margins and inventory turnover in fiscal 2006. The Company is currently
scheduled to close one store in the first half of fiscal 2006 and will continue
to carefully evaluate the profitability of individual stores and close those
stores that it believes cannot meet a level of profitability it deems
acceptable.

    The following table sets forth certain store information:
<TABLE>
<CAPTION>
                                                                    STORE DATA(1)
                                                               YEAR ENDED JANUARY 31,
                                                       -------------------------------------
                                                         2005           2004          2003
                                                       -------        -------        -------
<S>                                                    <C>           <C>            <C>
Stores open at end of the year                             323           332           327
Average number in operation during the year                327           331           320
Average net sales per store (in thousands)                $929          $902          $994
Average operating income per store (in thousands)         $ 80          $ 55 (2)      $121 (2)
Comparable store sales3 -- percent change                  1.0%         (9.7)%         0.1%

</TABLE>

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

<TABLE>
<CAPTION>
                                   YEAR ENDED JANUARY 31,
                            -----------------------------------
                             2005       2004           2003
                            -----  -------------  -------------
                                   (as restated)  (as restated)
<S>                           <C>            <C>            <C>
Net sales                   100.0%         100.0%         100.0%
Gross margin                 33.2%          31.2%          34.9%
Operating income              8.6%           6.1%          12.2%
Income before income taxes    9.4%           6.5%          12.8%
Income tax provision          3.5%           2.3%           4.8%
                            -----           -----          -----
Net income                    5.9%           4.2%           8.0%
                            =====           =====          =====

</TABLE>
----------
(1) Includes Tops 'N Bottoms stores
(2) As Restated
(3) Comparable store sales include stores opened for both periods. A store is
    added to the comparable store base in its 13th month of operation.

                                       -9-
<PAGE>

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 is believed to be due to improved acceptance of the
Company's merchandise offering versus last year, 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 the Company's 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, the Company recognized
$176,000 and $181,000 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.


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.

                                      -10-
<PAGE>

FISCAL 2004 COMPARED TO FISCAL 2003

NET SALES

    Net sales decreased $19,076,000, or 6.0%, to $298,646,000 in fiscal 2004
from $317,722,000 in fiscal 2003. The decrease in net sales was due to a 9.7% or
$31,066,000 decrease in comparable store sales, partially offset by sales from
new stores of $11,990,000. The decrease is believed to be attributable to
economic softness in the Company's core markets, principally the East and
Midwest portions of the United States. Additional factors that are believed to
have contributed to the decrease during this period were higher gas prices,
unfavorable weather conditions during the first four months of fiscal 2004 and
the resulting merchandising challenges created by those conditions.


COST OF SALES, INCLUDING BUYING AND OCCUPANCY COSTS

    Cost of sales, including buying and occupancy costs, decreased $1,360,000 or
0.7%, to $205,571,000 in fiscal 2004 from $206,931,000 in fiscal 2003. As a
percentage of net sales, these costs increased to 68.8% in fiscal 2004 from
65.1% in fiscal 2003. The nominal decrease between periods was due to the
overall decrease in sales. The increase as a percentage of net sales was due to
increased markdowns taken to stimulate sales as well as the de-leveraging of
buying and occupancy costs as a result of the comparable store sales decrease.
Buying and occupancy costs were 17.0% and 15.5% of net sales for fiscal 2004 and
2003, respectively.


SELLING AND ADMINISTRATIVE EXPENSES

    Selling and administrative expenses increased $1,895,000 or 2.8%, to
$69,100,000 in fiscal 2004 from $67,205,000 in fiscal 2003. As a percentage of
net sales, these costs increased to 23.1% in fiscal 2004 from 21.1% in fiscal
2003. The $1,895,000 increase was due to increases in health, property and
casualty insurance costs as well as an increase in store payroll costs,
partially resulting from an increase in the number of stores in operation. The
increase as a percentage of sales was also due to these cost increases as well
as the de-leveraging of selling and administrative costs as a result of the
comparable store sales decrease.


DEPRECIATION AND AMORTIZATION

    Depreciation and amortization expense increased $808,000 or 16.4%, to
$5,740,000 in fiscal 2004 from $4,931,000 in fiscal 2003. As a percentage of net
sales, these expenses increased to 1.9% in fiscal 2004 from 1.6% in fiscal 2003.
The $808,000 increase was due to the full year depreciation expense recorded in
fiscal 2004 for stores placed in service during fiscal 2003, additional
depreciation expense related to the new and remodeled stores opened in fiscal
2004 and from $181,000 in asset impairment charges recorded for two unprofitable
stores. The increase as a percentage of sales was also due to these expense
increases as well as the de-leveraging of depreciation and amortization expense
as a result of the comparable store sales decrease.


OPERATING INCOME

    Operating income decreased $20,419,000 or 52.8%, to $18,234,000 in fiscal
2004 from $38,653,000 in fiscal 2003. As a percentage of net sales, operating
income declined to 6.1% in fiscal 2004 from 12.2% in fiscal 2003. The absolute
and percentage decreases were due to the aforementioned decrease in gross profit
margin, and increases in selling and administrative and depreciation and
amortization expenses.


OTHER INCOME, PRINCIPALLY INTEREST

    Other income, principally interest, decreased $595,000 or 30.4% to
$1,362,000 in fiscal 2004 from $1,958,000 in fiscal 2003. Other income was
offset by losses on disposition of fixed assets of $279,000 in fiscal 2004 and
$38,000 in fiscal 2003. The decrease between fiscal periods was primarily the
result of lower average interest rates in fiscal 2004 versus fiscal 2003 and the
increase in the losses related to fixed asset dispositions, partially offset by
higher cash balances.

                                      -11-

<PAGE>

INCOME TAX PROVISION

    The income tax provision for fiscal 2004 was $6,995,000, resulting in a
35.7% effective tax rate, as compared to $15,327,000 and a 37.7% effective tax
rate for fiscal 2003. The decrease in the effective rate between fiscal periods
resulted from the fact that, due to the decline in year over year earnings,
current year tax-exempt interest earnings represented a greater 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, 2005, the Company had cash and cash equivalents of
$30,299,000 and marketable securities of $146,100,000 compared to cash and cash
equivalents of $34,064,000 and marketable securities of $132,200,000 as of
January 31, 2004. 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 the
Company regularly liquidates its 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, the Company has
classified these securities as available for sale. The Company does not invest
for trading purposes. Accordingly, the Company does not believe it has
significant exposure to market risk with respect to its investments.

    During the past three fiscal years, the Company internally funded all of its
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 the Company's merchandise distribution system. Total cash provided
by operating activities, for fiscal 2005, 2004 and 2003, was $24,940,000,
$24,777,000 and $30,818,000 and, respectively. 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. For fiscal 2003, cash provided by operations was the result of
net income, increased by depreciation, an increase in deferred lease credits and
a reduction in merchandise inventories, offset by a net decrease in accounts
payable and accrued expenses. The Company's inventory turnover rate was
approximately 2.9, 2.9 and 3.0 times for fiscal 2005, 2004 and 2003,
respectively.

    Net cash used in investing activities was $18,121,000, $18,182,000 and
$18,826,000 for fiscal 2005, 2004 and 2003, 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:

<TABLE>
<CAPTION>
                  FISCAL 2005  FISCAL 2004  FISCAL 2003
                  -----------  -----------  -----------

<S>                       <C>          <C>          <C>
New stores                  8           13           23
Remodeled stores           11           17           16

</TABLE>

    Net cash used in financing activities was $10,585,000, $6,898,000 and
$5,406,000 for fiscal 2005, 2004 and 2003, respectively. During these fiscal
years, these funds were principally used for the payment of dividends on
preferred and common stock. In fiscal 2005 and fiscal 2003, these amounts were
partially offset by the proceeds from the exercise of stock options. There were
no stock option exercises during fiscal 2004.

                                      -12-

<PAGE>

    The Company believes that internally generated funds will be sufficient to
meet its anticipated capital expenditures, none of which are material, and
current operating needs. The Company had an unsecured line of credit in the
amount of $20,000,000 as of January 31, 2005. Of this amount, $695,000 was
outstanding as letters of credit for the purchase of inventory. The Company
leases its retail apparel stores, warehouse and office building for periods
ranging from one to 20 years. Following is a summary of the Company's
contractual obligations for minimum rental payments on its non-cancelable
operating leases and minimum payments on its other commitments as of January 31,
2005:
<TABLE>
<CAPTION>
                                           Payments Due by Period
                   ----------------------------------------------------------------------
                                    Less than 1     1 -- 3        3 -- 5     More than 5
                        Total          Year          Years         Years         Years
                   --------------  ------------  ------------  ------------  ------------

<S>                           <C>           <C>           <C>           <C>           <C>
Operating leases    $ 133,651,000  $ 24,086,000  $ 40,950,000  $ 28,860,000  $ 39,755,000
Other commitments         695,000       695,000            --            --            --
                   --------------  ------------  ------------  ------------  ------------

 Total              $ 134,346,000  $ 24,781,000  $ 40,950,000  $ 28,860,000  $ 39,755,000
                   --------------  ------------  ------------  ------------  ------------


</TABLE>
    The above table excludes $1,734,000 in dividends, which were accrued at
January 31, 2005 and were paid in February 2005.


SEASONAL NATURE OF OPERATIONS

    During fiscal 2005, approximately 27% and 59% of the Company's net sales and
net income occurred during the fourth quarter, as compared to 27% and 67% of the
Company's net sales and net income for fiscal 2004. The fourth quarter includes
the Christmas selling season. The decrease in the percentage of the Company's
fiscal 2005 fourth quarter net income compared to the fourth quarter of fiscal
2004 was due to the increase in net income for the first three quarters of
fiscal 2005 versus the comparable period in fiscal 2004. See "Quarterly
Financial Information (Unaudited)" and the preceding discussions on "Fiscal 2005
compared to Fiscal 2004" and "Fiscal 2004 compared to Fiscal 2003."


CRITICAL ACCOUNTING POLICIES

    The Company's 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 the
Company 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 the Company believes to be reasonable under the
circumstances. Actual results could differ from those estimates under different
assumptions or conditions.

    Periodically, the Company's 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. The Company's significant accounting policies are
described in the notes accompanying the financial statements included in Item 8.
Financial Statements and Supplementary Data. However, the Company considers the
following accounting policies to be more dependent on the use of estimates and
assumptions.

                                      -13-

<PAGE>

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. The Company also defers 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 the Company's 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, the Company
estimates its income tax liability and assesses 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. The
Company cannot guarantee that it 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"), the Company is required to assess its 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. During fiscal 2005 and 2004, the
Company recognized $176,000 and $181,000 in impairment charges related to
unprofitable stores. No impairment charges were recorded during fiscal 2003.


RECENT ACCOUNTING PRONOUNCEMENTS

    On December 16, 2004, the FASB issued SFAS 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, which for the Company will be the fiscal year beginning February 1, 2006.

    Previously, in complying with FAS 123, the Company disclosed the value of
stock options granted and its pro-forma impact on net income in a footnote to
the consolidated financial statements. The Company is currently considering
which transition method to select in adopting FAS 123(R), and whether this new
accounting requirement will result in any changes in compensation strategies.
Information contained in the footnotes provides the impact on pro forma net
income for past financial statements. The adoption of FAS 123(R) is not expected
to have a material impact on the Company's future financial statements.

                                      -14-

<PAGE>

    In November 2004, the FASB issued SFAS No. 151 ("FAS 151"), "Inventory
Costs." This Statement amends the guidance in Accounting Research Bulletin No.
43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material.
FAS 151 requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition, FAS
151 requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
provisions of FAS 151 are effective for fiscal years beginning after June 15,
2005. The adoption of FAS 151 is not expected to have a material impact on the
Company's future financial statements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    See the first paragraph under the caption "Liquidity and Capital Resources
-- Consolidated" 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

     The Company's 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. The Company's
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. The Company's 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
the Company's transactions and dispositions of its assets; (ii) provide
reasonable assurance that the Company's transactions are recorded as necessary
to permit preparation of its financial statements in accordance with generally
accepted accounting principles, and that the Company's receipts and expenditures
are being made only in accordance with authorizations of the Company's
management and its Board of Directors; and (iii) 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.

     Management assessed the effectiveness of the Company's internal control
over financial reporting as of January 31, 2005. In making this assessment, the
Company's 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 the Company's internal control over financial
reporting was effective as of January 31, 2005.

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

                                      -15-

<PAGE>

             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, 2005, 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, 2005, 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, 2005, 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 sheet of
the Company as of January 31, 2005 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year ended January 31,
2005, and our report dated April 5, 2005 expressed an unqualified opinion
thereon.

/s/ BDO SEIDMAN, LLP
--------------------------
Philadelphia, Pennsylvania
May 27, 2005

                                      -16-

<PAGE>

             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 sheet of Deb Shops, Inc.
and subsidiaries as of January 31, 2005, and the related consolidated statement
of operations, shareholders' equity and cash flows for the year ended January
31, 2005. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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, 2005, and the results of their operations and their
cash flows for the year ended January 31, 2005 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note B to the consolidated financial statements, the fiscal 2004
and 2003 financial statements have been restated to correct errors in accounting
for leases.



April 5, 2005

/s/ BDO Seidman, LLP
---------------------------
BDO Seidman, LLP
Philadelphia, Pennsylvania
---------------------------

                                      -17-

<PAGE>

             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, and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the two years in
the period ended January 31, 2004. 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. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audits
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
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 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 each of the two years in the period
ended January 31, 2004, in conformity with U.S. generally accepted accounting
principles.

As discussed in note B, the accompanying consolidated financial statements for
fiscal 2004 and 2003 have been restated.

                                         ERNST & YOUNG LLP


Philadelphia, Pennsylvania
March 8, 2004,
except for note B as to which the date is
April 15, 2005

                                      -18-

<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               YEAR ENDED JANUARY 31,
                                    -------------------------------------------
                                         2005           2004           2003
                                    -------------  -------------  -------------

                                                   (AS RESTATED,  (AS RESTATED,
                                                    SEE NOTE B)    SEE NOTE B)
<S>                                           <C>            <C>            <C>
Net sales                           $303,778,103   $ 298,645,811  $ 317,721,720
                                    -------------  -------------  -------------

Costs and expenses:
 Cost of sales, including buying
   and occupancy costs                202,837,874    205,571,543    206,931,391
 Selling and administrative            69,356,328     69,100,302     67,205,182
 Depreciation and amortization          5,384,283      5,740,192      4,931,845
                                    -------------  -------------  -------------
                                      277,578,485    280,412,037    279,068,418

Operating income                       26,199,618     18,233,774     38,653,302
Other income, principally interest      2,316,312      1,362,198      1,957,614
                                    -------------  -------------  -------------

Income before income taxes             28,515,930     19,595,972     40,610,916
Income tax provision                   10,572,000      6,995,000     15,327,000
                                    -------------  -------------  -------------

Net income                           $ 17,943,930   $ 12,600,972   $ 25,283,916
                                    =============  =============  =============

Net income per common share
           Basic                     $       1.30   $       0.92   $       1.85
                                    =============  =============  =============

           Diluted                   $       1.30   $       0.92   $       1.83
                                    =============  =============  =============

Weighted average number of
  common shares outstanding
           Basic                       13,729,100     13,684,900     13,672,073
                                    =============  =============  =============

           Diluted                     13,753,461     13,684,900     13,815,059
                                    =============  =============  =============


</TABLE>
See notes to consolidated financial statements.

                                      -19-

<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     JANUARY 31,
                                                             ----------------------------
                                                                 2005           2004
                                                             -------------  -------------

                                                                            (AS RESTATED,
                                                                             SEE NOTE B)
<S>                                                                    <C>            <C>
ASSETS
CURRENT ASSETS
 Cash and cash equivalents                                    $ 30,298,970   $ 34,064,418
 Marketable securities                                         146,100,000    132,200,000
 Merchandise inventories                                        30,560,176     28,264,675
 Prepaid expenses and other                                      2,616,185      2,718,323
 Deferred income taxes                                             910,889      1,055,940
                                                             -------------  -------------
   Total current assets                                        210,486,220    198,303,356

PROPERTY, PLANT AND EQUIPMENT -- AT COST
 Land                                                              150,000        150,000
 Buildings                                                       2,365,697      2,365,697
 Leasehold improvements                                         53,168,985     52,088,624
 Furniture and equipment                                        16,568,516     16,680,575
                                                             -------------  -------------
                                                                72,253,198     71,284,896

 Less accumulated depreciation and amortization                 48,993,382     46,791,260
                                                             -------------  -------------

   Net property, plant and equipment                            23,259,816     24,493,636
                                                             -------------  -------------

OTHER ASSETS
 Deferred income taxes                                           7,421,935      6,937,420
 Other                                                           1,712,223      1,962,223
                                                             -------------  -------------

   Total other assets                                            9,134,158      8,899,643
                                                             -------------  -------------

       Total assets                                           $242,880,194   $231,696,635
                                                             =============  =============


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
 Trade accounts payable                                       $ 26,921,683   $ 26,523,559
 Accrued expenses and other                                     11,314,244     10,141,456
 Income taxes payable                                            4,618,905      2,564,688
                                                             -------------  -------------
   Total current liabilities                                    42,854,832     39,229,703

 Deferred lease credits                                         11,114,224     10,920,087

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                                      7,232,646      5,864,790
 Retained earnings                                             193,467,638    187,949,432
                                                             -------------  -------------
                                                               200,857,627    193,971,565
 Less common treasury shares, at cost:
   January 31, 2005: 1,926,279; January 31, 2004: 2,003,390     11,946,489     12,424,720
                                                             -------------  -------------

                                                               188,911,138    181,546,845
                                                             -------------  -------------

     Total liabilities and shareholders' equity               $242,880,194   $231,696,635
                                                             =============  =============


</TABLE>
See notes to consolidated financial statements.

                                      -20-
<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                            PREFERRED   COMMON   ADDITIONAL PAID-IN    RETAINED      TREASURY
                                              STOCK      STOCK         CAPITAL         EARNINGS        STOCK
                                            ---------  --------  ------------------  ------------  ------------
<S>                                               <C>       <C>                 <C>           <C>           <C>
Balances -- February 1, 2002
  (as previously reported)                  $     460  $156,883  $        5,864,790  $164,732,974  $(12,796,830)
Adjustment for restated beginning balance
  (see Note B)                                                                         (1,647,325)
                                            ---------  --------  ------------------  ------------  ------------

Balances -- February 1, 2002
  (as restated - See Note B)                      460   156,883           5,864,790   163,085,649   (12,796,830)
Net income -- (as restated --
  See Note B)                                                                          25,283,916
Dividends on preferred stock
  ($120 per share)                                                                        (55,200)
Dividends on common stock
  ($.425 per share)                                                                    (5,816,085)
Stock options exercised                                                                    47,890       372,110
Tax benefit from exercise of stock options                                                 42,064
                                            ---------  --------  ------------------  ------------  ------------

Balances -- January 31, 2003
  (as restated -- See Note B)                     460   156,883           5,864,790   182,588,234   (12,424,720)
Net income -- (as restated --
  See Note B)                                                                          12,600,972
Dividends on preferred stock
  ($120 per share)                                                                        (55,200)
Dividends on common stock
  ($.525 per share)                                                                    (7,184,574)
                                            ---------  --------  ------------------  ------------  ------------

Balances -- January 31, 2004
  (as restated -- See Note B)                     460   156,883           5,864,790   187,949,432   (12,424,720)
Net income                                                                             17,943,930
Dividends on preferred stock
  ($120 per share)                                                                        (55,200)
Dividends on common stock
  ($.90 per share)                                                                    (12,370,524)
Stock options exercised                                                   1,353,156                     478,231
Tax benefit from exercise of stock options                                   14,700
                                            ---------  --------  ------------------  ------------  ------------

Balances -- January 31, 2005                $     460  $156,883  $        7,232,646  $193,467,638  $(11,946,489)
                                            =========  ========  ==================  ============  ============


</TABLE>
See notes to consolidated financial statements.

                                      -21-

<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JANUARY 31,
                                                         -----------------------------------------
                                                             2005          2004           2003
                                                         -----------  -------------  -------------
                                                                      (AS RESTATED,  (AS RESTATED,
                                                                       SEE NOTE B)    SEE NOTE B)
<S>                                                              <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                             $17,943,930  $  12,600,972  $  25,283,916
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Depreciation and amortization                          5,384,283      5,740,192      4,931,845
    Deferred income tax benefit                             (235,000)      (740,000)    (1,105,000)
    Loss on retirement of property,
       plant and equipment                                    70,401        278,910         37,962
    Changes in operating assets and liabilities:
      (Increase) decrease in merchandise inventories      (2,295,501)     1,646,615      1,130,423
      Decrease (increase) in prepaid expenses and other      351,618       (470,872)       286,276
      Increase (decrease) in trade accounts payable          398,124      4,906,893     (2,621,060)
      Increase in accrued expenses and other               1,163,149        465,528        548,287
      Increase (decrease) in income taxes payable          1,964,973       (903,419)      (270,708)
      Increase in deferred lease credits                     194,137      1,251,819      2,596,413
                                                         -----------  -------------  -------------

    Net cash provided by operating activities             24,940,114     24,776,638     30,818,356
                                                         -----------  -------------  -------------

Cash flows from investing activities:
  Purchases of property, plant and equipment              (4,220,861)    (4,231,924)    (8,046,884)
  Purchases of investment securities                     (79,600,000)   (70,350,000)  (143,650,000)
  Sales of investment securities                          65,700,000     56,400,000    132,870,460
                                                         -----------  -------------  -------------

   Net cash used in investing activities                 (18,120,861)   (18,181,924)   (18,826,424)
                                                         -----------  -------------  -------------

Cash flows from financing activities:
  Preferred stock cash dividends paid                        (55,200)       (55,200)       (55,200)
  Common stock cash dividends paid                       (12,360,887)    (6,842,451)    (5,469,463)
  Proceeds from exercise of stock options                  1,831,386            ---        420,000
  Principal payments under capital lease obligation              ---            ---       (301,117)
                                                         -----------  -------------  -------------

   Net cash used in financing activities                 (10,584,701)    (6,897,651)    (5,405,780)
                                                         -----------  -------------  -------------

(Decrease) increase in cash and cash equivalents          (3,765,448)      (302,937)     6,586,152
Cash and cash equivalents at beginning of year            34,064,418     34,367,355     27,781,203
                                                         -----------  -------------  -------------

Cash and cash equivalents at end of year                 $30,298,970  $  34,064,418  $  34,367,355
                                                         ===========  =============  =============

Supplemental disclosures of cash flow information: Cash paid during the year
  for:
                                                         -----------  -------------  -------------

   Income taxes, net                                     $ 8,991,179  $   8,542,787  $  15,072,466
                                                         ===========  =============  =============


</TABLE>
See notes to consolidated financial statements.

                                      -22-

<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-- A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OPERATION: Deb Shops, Inc. (the "Company") operates 323 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. The
Company operates 314 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, the
Company operates 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 forty of the DEB stores
contain plus-size departments. The Company also operates six apparel retail
stores under the name "Tops `N Bottoms." The Tops `N Bottoms stores sell
moderately priced men's and women's apparel. Seventeen of the DEB stores contain
Tops `N Bottoms departments.

CONSOLIDATION: The consolidated financial statements of the Company include the
accounts of the Company and its 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.

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. The Company also
defers the recognition of layaway sales to the date of delivery.

LEASE ACCOUNTING: Accounting for store leases commences on the date the Company
takes possession of the leased space, which generally is one month prior to
lease commencement. Landlord allowances and incentives 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
recorded as deferred lease credits.

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

                                      -23-

<PAGE>

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. 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. During fiscal 2005 and 2004, the
Company recognized $176,000 and $181,000 in impairment charges related to
unprofitable stores. These amounts are included in depreciation and amortization
in the accompanying consolidated statement of operations. No impairment charges
were recorded during fiscal 2003.

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.

STATEMENTS OF CASH FLOWS: The Company considers 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, 2005 and January 31, 2004
is $26,050,000 and $31,689,000, respectively of investments in money market
mutual funds. These investments are carried at cost, which approximates market.

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, the Company chose to continue
accounting for such items using the intrinsic value method. As required, the
Company did adopt the disclosure provisions of this standard.

    In February 2002, the Company 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. The Company continues 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 the Company's 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 the Company had applied the fair value recognition
provisions of SFAS No. 123, to all stock-related compensation.

                                      -24-

<PAGE>

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

<TABLE>
<CAPTION>
                                                            YEAR ENDED JANUARY 31,
                                                  -----------------------------------------
                                                      2005          2004          2003
                                                               (AS RESTATED)  (AS RESTATED)
                                                  -----------  -------------  -------------
<S>                                                       <C>            <C>            <C>
Net income as reported                            $17,943,930  $  12,600,972  $  25,283,916
Stock-based employee compensation cost               (662,316)    (2,061,296)    (4,038,246)
                                                  -----------  -------------  -------------

Pro forma net income                              $17,281,614  $  10,539,676  $  21,245,670
                                                  ===========  =============  =============

Basic net income per common share, as reported    $      1.30  $        0.92  $        1.85
Pro forma basic net income per common share       $      1.25  $        0.77  $        1.55


Diluted net income per common share, as reported  $      1.30  $        0.92  $        1.83
Pro forma diluted net income per common share     $      1.25  $        0.77  $        1.53

</TABLE>
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, which for the Company, will
be the fiscal year beginning February 1,2006.

    Previously, in complying with FAS 123, the Company disclosed the value of
stock options granted and its pro forma impact on net income in a footnote to
the consolidated financial statements. The Company is currently considering
which transition method to select in adopting FAS 123(R), and whether this new
accounting requirement will result in any changes in compensation strategies.
Information contained in the footnotes provides the impact on pro forma net
income for past financial statements. The adoption of FAS 123(R) is not expected
to have a material impact on the Company's future financial statements.

    In November 2004, the FASB issued SFAS No. 151 ("FAS 151"), "Inventory
Costs." This Statement amends the guidance in Accounting Research Bulletin No.
43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material.
FAS 151 requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition, FAS
151 requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
provisions of FAS 151 are effective for fiscal years beginning after June 15,
2005. The adoption of FAS 151 is not expected to have a material impact on the
Company's future financial statements.


-- B -- RESTATEMENT OF FINANCIAL STATEMENTS

    As a result of the publicity on the restaurant industry financial statement
restatements related to leases, the Company commenced a review of certain of its
accounting policies related to leases during January 2005. Subsequently, on
February 7, 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 the
Company's internal review, and after consultation with the Audit Committee of
the Company's Board of Directors and predecessor independent registered public
accounting firm on April 19, 2005, the Company restated its financial statements
for years prior to Fiscal 2005 to correct its accounting for landlord
allowances, calculation of straight-line rent expense, recognition of rent
holiday periods, and depreciation of leasehold improvements for its retail
stores.
                                      -25-

<PAGE>

    Certain of the Company's store leases contain provisions that enable the
Company or the landlord to terminate the lease if sales during a defined
measurement period fall below agreed-upon levels. The Company has historically
recorded rent expense on a straight-line basis, beginning with the lease
commencement date, which generally coincides with the store opening date,
through the early termination date The period during which a store was prepared
for opening historically was excluded from the straight-line rent schedule.
Financial Accounting Standards Board ("FASB") Technical Bulletin 85-3 ("FTB 85-
3"), "Accounting for Operating Leases with Scheduled Rent Increases," states,
however, that rent holidays should be recognized on a straight-line basis over
the lease term, which according to FASB Technical Bulletin 88-1, "Issues
Relating to Accounting for Leases ("FTB 88-1"), commences on the date the
Company is given the right to control the use of the leased property. Consistent
with this guidance, the Company has changed the period used for determining the
deferred rent calculation to commence on the date the Company began controlling
the use of the property (i.e. began preparing a store for opening) through the
initial non-cancelable life of the lease.

    Depreciation of leasehold improvements has historically been calculated
based upon the term of the lease. The Company has changed its accounting for
leasehold improvements to depreciate leasehold improvements over the lesser of
the term of the lease or 10 years. In addition, the Company has historically
accounted for tenant improvement allowances as a reduction of the cost of
leasehold improvements, resulting in lower depreciation expense, and reflected
the cash received within investing activities in the consolidated statement of
cash flows as a reduction of purchases of property, plant, and equipment. This
treatment was consistent whether the improvement allowance was provided in cash
or in the form of a rent abatement. FTB 88-1 requires that lease incentives such
as tenant allowances be recorded as a deferred liability, amortized over the
term of the lease and reflected as a reduction to rent expense. Previously,
amortization commenced on the date the store was opened and was reflected as a
reduction to depreciation and amortization. Consistent with the recording of
rent expense described above, the Company now amortizes tenant allowances
commencing on the date the Company has the right to control the use of the
leased property. Tenant allowances in the form of rent abatements were
historically charged to rent expense on a straight-line basis over the number of
months the rent was abated. Tenant allowances are now included as a component of
operating activities in the consolidated statement of cash flows

    The primary effects of the correction discussed above resulted in the
Company reclassifying its tenant improvement allowances from "Net property,
plant and equipment" to "Deferred lease credits," recording additional deferred
rent in "Deferred lease credits," and adjusting "Retained earnings" in the
consolidated balance sheets, as well as to correct "Cost of sales, including
buying and occupancy costs" and "Depreciation and amortization" in the
consolidated statements of operations for each of the two years in the period
ended January 31, 2004. The cumulative effect of these adjustments reduced
retained earnings as of February 1, 2002 by $1,647,325, net of tax.

    In prior years, the Company classified its 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, at January 31,
2005, the Company has classified its auction rate certificates as marketable
securities and has restated the January 31, 2004 consolidated balance sheet to
reflect this change. This change also resulted in the Company restating its
consolidated statements of cash flows for the years ended January 31, 2004 and
2003 to reflect the purchase and sale activity within the investing activities
section of the consolidated statements of cash flows. This change had no effect
on current or total assets or net income.

                                      -26-

<PAGE>

    Following is a summary of the effects of these adjustments on the Company's
consolidated statements of operations and of cash flows for the years ended
January 31, 2004 and 2003, the Company's consolidated balance sheet as of
January 31, 2004 and the Company's consolidated statement of shareholders'
equity as of February 1, 2002:
<TABLE>
<CAPTION>
                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                     --------------------------------------------------
                                     AS PREVIOUSLY REPORTED  ADJUSTMENTS   AS RESTATED
                                     -------------------------------------------------

<S>                                                     <C>          <C>           <C>
YEAR ENDED JANUARY 31, 2004:
 Cost of sales, including
   buying and occupancy costs                  $206,693,546  $(1,122,003) $205,571,543
 Depreciation and amortization                 $  4,321,598  $ 1,418,594  $  5,740,192
 Operating income                              $ 18,530,365  $  (296,591) $ 18,233,774
 Other income, principally interest            $  1,365,255  $    (3,057) $  1,362,198
 Income before income taxes                    $ 19,895,620  $  (299,648) $ 19,595,972
 Income tax provision                          $  7,129,000  $  (134,000) $  6,995,000
 Net income                                    $ 12,766,620  $  (165,648) $ 12,600,972
 Basic net income per share                    $       0.93  $     (0.01) $       0.92
 Diluted net income per share                  $       0.93  $     (0.01) $       0.92

YEAR ENDED JANUARY 31, 2003:
 Cost of sales, including
   buying and occupancy costs                  $207,550,269  $  (618,878) $206,931,391
 Depreciation and amortization                 $  3,869,277  $ 1,062,568  $  4,931,845
 Operating income                              $ 39,096,992  $  (443,690) $ 38,653,302
 Other income, principally interest            $  1,863,502  $    94,112  $  1,957,614
 Income before income taxes                    $ 40,960,494  $  (349,578) $ 40,610,916
 Income tax provision                          $ 15,472,000  $  (145,000) $ 15,327,000
 Net income                                    $ 25,488,494  $  (204,578) $ 25,283,916
 Basic net income per share                    $       1.86  $     (0.01) $       1.85
 Diluted net income per share                  $       1.84  $     (0.01) $       1.83

</TABLE>

<TABLE>
<CAPTION>
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        ---------------------------------------------------
                                        AS PREVIOUSLY REPORTED   ADJUSTMENTS    AS RESTATED
                                        ---------------------------------------------------

<S>                                                        <C>            <C>           <C>
YEAR ENDED JANUARY 31, 2004:
 Net cash provided by operating
   activities                                     $ 22,398,111  $   2,378,527  $ 24,776,638
 Purchases of property, plant and
   equipment                                      $ (1,853,397) $  (2,378,527) $ (4,231,924)
 Purchases of marketable securities               $         --  $ (70,350,000) $(70,350,000)
 Sales of marketable securities                   $         --  $  56,400,000  $ 56,400,000
 Net cash used in investing activities            $ (1,853,397) $ (16,328,527) $(18,181,924)
 Increase (decrease) in cash and cash
   equivalents                                    $ 13,647,063  $ (13,950,000) $   (302,937)
 Cash and cash equivalents at
   beginning of year                              $152,617,355  $(118,250,000) $ 34,367,355
 Cash and cash equivalents at
   end of year                                    $166,264,418  $(132,200,000) $ 34,064,418

</TABLE>
                                      -27-

<PAGE>

<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                        ----------------------------------------------------
                                        AS PREVIOUSLY REPORTED   ADJUSTMENTS    AS RESTATED
                                        ----------------------------------------------------

<S>                                                        <C>            <C>            <C>
YEAR ENDED JANUARY 31, 2003:
 Net cash provided by operating
   activities                                     $ 27,612,419  $   3,205,937  $  30,818,356
 Purchases of property, plant and
   equipment                                      $ (4,840,947) $  (3,205,937) $  (8,046,884)
 Purchases of marketable securities               $        ---  $(143,650,000) $(143,650,000)
 Sales of marketable securities                   $        ---  $ 132,870,460  $ 132,870,460
 Net cash used in investing activities            $ (4,840,947) $ (13,985,477) $ (18,826,424)
 Increase in cash and cash equivalents            $ 17,365,692  $ (10,779,540) $   6,586,152
 Cash and cash equivalents at
   beginning of year                              $135,251,663  $(107,470,460) $  27,781,203
 Cash and cash equivalents at
   end of year                                    $152,617,355  $(118,250,000) $  34,367,355

</TABLE>

<TABLE>
<CAPTION>
                                CONSOLIDATED BALANCE SHEET
                                      ---------------------------------------------------
                                      AS PREVIOUSLY REPORTED   ADJUSTMENTS    AS RESTATED
                                      ---------------------------------------------------

<S>                                                      <C>            <C>           <C>
JANUARY 31, 2004:
 Cash and cash equivalents                      $166,264,418  $(132,200,000) $ 34,064,418
 Marketable securities                          $        ---  $ 132,200,000  $132,200,000
 Prepaid expenses and other                     $  3,150,882  $    (432,559) $  2,718,323
 Net property, plant and equipment              $ 17,112,877  $   7,380,759  $ 24,493,636
 Deferred income taxes -- current               $  1,260,191  $    (204,251) $  1,055,940
 Deferred income taxes -- long-term             $  4,732,846  $   2,204,574  $  6,937,420
 Total assets                                   $222,748,112  $   8,948,523  $231,696,635
 Accrued expenses and other                     $ 10,649,923  $    (508,467) $ 10,141,456
 Income taxes payable                           $  2,010,234  $     554,454  $  2,564,688
 Total current liabilities                      $ 39,183,716  $      45,987  $ 39,229,703
 Deferred lease credits                         $        ---  $  10,920,087  $ 10,920,087
 Retained earnings                              $189,966,983  $  (2,017,551) $187,949,432
 Total liabilities and shareholders'
   equity                                       $222,748,112  $   8,948,523  $231,696,635

</TABLE>

<TABLE>
<CAPTION>
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    -------------------------------------------------
                    AS PREVIOUSLY REPORTED  ADJUSTMENTS   AS RESTATED
                    -------------------------------------------------

<S>                                    <C>          <C>           <C>
FEBRUARY 1, 2002:
 Retained earnings            $164,732,974  $(1,647,325) $163,085,649

</TABLE>
                                      -28-

<PAGE>

-- C -- MARKETABLE SECURITIES

    The Company's 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 the Company regularly liquidates
its 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, the Company has 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, 2005, 2004 or 2003. Contractual maturities of available for
sale securities at January 31, 2005 consisted of $9,900,000 maturing between one
and 10 years and $136,200,000 million 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:
<TABLE>
<CAPTION>
                                  -----------------------------------------
                                            YEAR ENDED JANUARY 31,
                                  -----------------------------------------
                                      2005          2004           2003
                                  -----------------------------------------
                                               (AS RESTATED)  (AS RESTATED)

<S>                                       <C>            <C>            <C>
Net income                        $17,943,930  $  12,600,972  $  25,283,916
Dividends on preferred stock          (55,200)       (55,200)       (55,200)
                                  -----------------------------------------
Income available to
  common shareholders             $17,888,730  $  12,545,772  $  25,228,716
                                  =========================================
Basic weighted average
  number of common
  shares outstanding               13,729,100     13,684,900     13,672,073
Effect of dilutive stock options       24,361            ---        142,986
                                  -----------------------------------------
Diluted weighted average
  number of common
  shares outstanding               13,753,461     13,684,900     13,815,059
                                  =========================================

</TABLE>
-- E -- INCOME TAXES

    Income tax provision consists of the following components:
<TABLE>
<CAPTION>
                     YEAR ENDED JANUARY 31,
           -----------------------------------------
               2005          2004           2003
           -----------------------------------------
                        (AS RESTATED)  (AS RESTATED)
<S>                <C>            <C>            <C>
CURRENT:
 Federal   $ 8,749,000  $   6,585,000  $  13,978,000
 State       2,058,000      1,150,000      2,454,000
           -----------------------------------------
            10,807,000      7,735,000     16,432,000
DEFERRED:
 Federal       (77,000)      (420,000)      (861,000)
 State        (158,000)      (320,000)      (244,000)
           -----------------------------------------
              (235,000)      (740,000)    (1,105,000)
           -----------------------------------------
           $10,572,000  $   6,995,000  $  15,327,000
           =========================================

</TABLE>

                                      -29-

<PAGE>

    A reconciliation of the Company's effective income tax rate with the
statutory federal rate follows:
<TABLE>
<CAPTION>
                                                     YEAR ENDED JANUARY 31,
                                           -----------------------------------------
                                               2005          2004           2003
                                           -----------------------------------------
                                                        (AS RESTATED)  (AS RESTATED)

<S>                                                <C>            <C>            <C>
Tax provision at statutory rate            $ 9,981,000  $   6,859,000  $  14,214,000
State income taxes, net of federal income
  tax benefit                                1,094,000        413,000      1,437,000
Permanent items, primarily tax exempt
  interest income                             (607,000)      (430,000)      (462,000)
Other                                          104,000        153,000        138,000
                                           -----------------------------------------
                                           $10,572,000  $   6,995,000  $  15,327,000
                                           =========================================


</TABLE>
    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:
<TABLE>
<CAPTION>
                                         JANUARY 31,
                                  -------------------------
                                     2005         2004
                                  -------------------------
                                              (AS RESTATED)

<S>                                      <C>            <C>
Deferred tax assets
   Depreciation and amortization  $7,322,000  $   6,452,000
   Uniform cost capitalization       669,000        628,000
   Deferred lease credits            101,000        484,000
   Accrued expenses and other        529,000        725,000
                                  -------------------------
                                   8,621,000      8,289,000
Deferred tax liabilities
   Prepaid expenses                 (288,000)      (296,000)
                                  -------------------------
                                  $8,333,000  $   7,993,000
                                  =========================

</TABLE>
-- F -- LEASES

    The Company leases all of its retail apparel stores for periods ranging from
one month to 20 years, including renewal options. In most instances, the Company
pays 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.

    The warehouse and office building occupied by the Company is leased from a
partnership whose partners include three of the Company's 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. The amended arrangement is accounted for as an operating lease. Prior
to the extension, the agreement was classified as a capital lease. Rent expense
recognized in conjunction with the operating lease was $550,000 for the years
ended January 31, 2005 and 2004 and $321,000 for the year ended January 31,
2003.

                                      -30-

<PAGE>

    Future minimum rental commitments for all non-cancelable leases at January
31, 2005 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,           Operating Leases
--------------------------------------------------

<S>                                            <C>
2006                              $     24,086,000
2007                                    22,695,000
2008                                    18,255,000
2009                                    15,698,000
2010                                    13,162,000
Thereafter                              39,755,000
                                  ----------------
Total minimum rental commitments  $    133,651,000
                                  ================


</TABLE>
    Total rental expense under operating leases amounted to $27,436,000,
$27,002,000 and $25,937,000 in fiscal 2005, 2004 and 2003, respectively. Such
amounts include contingent rentals based upon a percentage of sales of
$2,142,000, $1,975,000 and $2,464,000 in fiscal 2005, 2004 and 2003,
respectively.


-- G -- STOCK OPTION PLAN

    In February 2002, the Company adopted the Deb Shops, Inc. Incentive Stock
Option Plan as Amended and Restated Effective January 1, 2002 (the "Plan"). The
Board of Directors, together with the Company's Stock Option and Compensation
Committees, administer the Plan. Under the Plan, options to purchase up to
3,000,000 shares of the Company's common stock, par value $.01 per share, may be
granted to employees or non-employee directors on the basis of contributions to
the operations of the Company. 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 the
Company's 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 granted
options expire through February 2009. There were 883,500 options reserved for
future grant under the Plan as of January 31, 2005.

    A summary of the Company's stock option activity and related information for
the fiscal years ended January 31 follows:
<TABLE>
<CAPTION>
                                             WEIGHTED
                                             AVERAGE
                                OPTIONS   EXERCISE PRICE
                               ---------  --------------


<S>                                  <C>             <C>
Outstanding, February 1, 2002     60,000  $         7.00
 Granted                       1,426,500           23.77
 Exercised                       (60,000)           7.00
 Cancelled                       (45,000)          23.75
                               -------------------------
Outstanding, January 31, 2003  1,381,500           23.77
 Granted                          45,000           23.75
 Exercised                           ---             ---
 Cancelled                       (46,500)          23.75
                               -------------------------
Outstanding, January 31, 2004  1,380,000  $        23.77
 Granted                          15,000           23.75
 Exercised                       (77,111)          23.75
 Cancelled                      (123,500)          23.75
                               -------------------------
Outstanding, January 31, 2005  1,194,389           23.77
                               =========================

</TABLE>
    The remaining contractual life of the outstanding options ranges from 2.1 to
4.3 years. Of the 1,194,389 options outstanding at January 31, 2005, 754,889
were exercisable at a weighted average exercise price of $23.77.

                                      -31-

<PAGE>

    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:
<TABLE>
<CAPTION>
                                         Fiscal 2005  Fiscal 2004  Fiscal 2003
                                            Grants      Grants       Grants
                                         -----------  -----------  -----------
<S>                                              <C>          <C>          <C>
Expected life                             Five years   Five years   Five years
Risk-free interest rate                         4.3%         4.3%         4.3%
Volatility                                     34.7%        34.7%        42.4%
Dividend yield                                  2.2%         2.6%         1.7%
Estimated fair value of options granted
                                               $6.47        $4.69        $8.84

</TABLE>
-- H -- COMMITMENTS AND CONTINGENCIES

    The Company has an unsecured line of credit in the amount of $20,000,000. As
of January 31, 2005, $695,000 was outstanding as letters of credit for the
purchase of inventory.

    One of the Company's 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 the Company's DEB business over a base-year amount. No
bonuses were earned in any of the fiscal years ended January 31, 2005, 2004 or
2003. This agreement is applicable through fiscal 2007.

    The Company is subject to legal proceedings, employment issues and claims
that arise in the ordinary course of its 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 the Company's
consolidated financial position or results of operations.

                                      -32-

<PAGE>

-- I -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
(amounts in thousands, except per share          FIRST         SECOND          THIRD         FOURTH
  data)                                         QUARTER        QUARTER        QUARTER        QUARTER
                                            ----------------------------------------------------------
                                            (AS RESTATED)  (AS RESTATED)  (AS RESTATED)

<S>                                                   <C>            <C>            <C>            <C>
FISCAL YEAR ENDED JANUARY 31, 2005:
  Net sales                                 $      73,081  $      72,831  $      75,307  $      82,560(1)
  Cost of sales, including buying and
    occupancy costs                         $      53,660  $      47,152  $      54,844  $      47,182
  Net income                                $         879  $       4,643  $       1,828  $      10,594(1)
  Basic net income per share                $        0.06  $        0.34  $        0.13  $        0.77
  Diluted net income per share              $        0.06  $        0.34  $        0.13  $        0.76
  Cash dividends declared per common share  $        .125  $        .525  $        .125  $        .125

FISCAL YEAR ENDED JANUARY 31, 2004:
                                            (AS RESTATED)  (AS RESTATED)  (AS RESTATED)  (AS RESTATED)
  Net sales                                 $      70,162  $      73,019  $      74,810  $      80,656(1)
  Cost of sales, including buying and
    occupancy costs                         $      52,114  $      49,989  $      55,016  $      48,453
  Net income                                $         239  $       2,664  $       1,141  $       8,557(1)
  Basic net income per share                $        0.02  $        0.19  $        0.08  $        0.62
  Diluted net income per share              $        0.02  $        0.19  $        0.08  $        0.62
  Cash dividends declared per
  common share                              $        .100  $        .175  $        .125  $        .125

</TABLE>
    Amounts have been restated to reflect the impact of the correction of the
Company's accounting for landlord allowances, calculation of straight-line rent
expense, recognition of rent holiday periods, and depreciation of leasehold
improvements for its retail stores. See Note B.

    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 2005, approximately 27% and 59% of the Company's net sales
and net income occurred during the fourth quarter, as compared to 27% and 67% of
the Company's net sales and net income for fiscal 2004. The fourth quarter
includes the Christmas selling season. The decrease in the percentage of the
Company's fiscal 2005 fourth quarter net income compared to the fourth quarter
of fiscal 2004 was due to the increase in net income for the first three
quarters of fiscal 2005 versus the comparable period in fiscal 2004.

                                      -33-

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    No additional disclosure is required regarding the Company's change in
independent accountants. The information included in the Company's Current
Report on Form 8-K filed on July 22, 2004 is incorporated herein by reference.


ITEM 9A. CONTROLS AND PROCEDURES

CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES

    The Company's chief executive officer and chief financial officer, with the
participation of other members of the Company's management, have evaluated the
effectiveness of the Company's 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, the Company's
disclosure controls and procedures were effective to ensure that information
that is required to be disclosed in its 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 the Company's 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, 2005 appears on page 15 of this Report on Form 10-K/A, and is
incorporated herein by reference. The Report of the Company's Independent
Registered Public Accounting Firm on Internal Control Over Financial Reporting
appears on page 16 of this Report on Form 10-K/A, and is incorporated herein by
reference.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

    There has not been any change in the Company's internal control over
financial reporting during its quarter ended January 31, 2005, except for
additional review procedures over the selection and monitoring of appropriate
assumptions and factors affecting the Company's lease accounting, that has
materially affected or is reasonably likely to materially affect its internal
control over financial reporting.


ITEM 9B. OTHER INFORMATION

    None.

                                      -34-

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The Company has adopted a Code of Business Conduct & Ethics that applies to
the Company's directors, officers and employees, including its principal
executive officer, principal financial officer and controller. The Company's
Code of Business Conduct & Ethics is available on its 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, the
Company intends 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 its principal executive officer, principal
financial officer, controller or persons performing similar functions and that
relates to certain topics by posting such information on its 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 2005 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.


ITEM 11. EXECUTIVE COMPENSATION

    The required information with respect to executive compensation is contained
in the 2005 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 2005 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, 2005 with respect
to compensation plans (including individual compensation arrangements) under
which the Company's equity securities are authorized for issuance.



                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                                                      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)
-------------------  -----------------------  --------------------  -----------------------
<S>                            <C>                     <C>                    <C>

Equity compensation
plans approved by
security holders            1,194,389                $23.77                 883,500

Equity compensation
plans not approved
by security holders             --                     --                      --
                     -----------------------  --------------------  -----------------------

Total                       1,194,389                $23.77                 883,500
                     =======================  ====================  =======================

</TABLE>
                                      -35-

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The required information with respect to certain relationships and related
transactions is contained in the 2005 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 2005 Proxy Statement under the caption
"Relationships with Independent Auditors," which is incorporated in this Annual
Report on Form 10-K by reference.



                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                         DOCUMENT                          PAGE(S)
---------------------------------------------------------  -------

<S>                                                            <C>
Reports of independent registered public accounting firms    16-18

Consolidated statements of operations for
the years ended January 31, 2005, 2004 and 2003                 19

Consolidated balance sheets as of January 31,
2005 and 2004                                                   20

Consolidated statements of shareholders'
equity for the years ended January 31, 2005,
2004 and 2003                                                   21

Consolidated statements of cash flows for the
years ended January 31, 2005, 2004 and 2003                     22

Notes to consolidated financial statements                   23-32

Selected quarterly financial information (unaudited)
for the years ended January 31, 2005 and 2004                   33

</TABLE>
    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.

                                      -36-

<PAGE>

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.
<TABLE>
<CAPTION>
EXHIBIT NO.  DESCRIPTION OF DOCUMENT
-----------  ------------------------------------------------------------------------------------------

<S>          <C>
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)

10-1.1       Amendment of Lease Agreement dated January 3, 1999 for property
             located at 9401 Blue Grass Road, Philadelphia, Pennsylvania 19114

10-2.1       * Insurance Policy for Marvin Rounick and Judy Rounick (2003 Form 10-K,
             Exhibit 10-2.1)

10-2.2       * Split Dollar Insurance Agreement dated July 31, 1987 between the Company and 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 Stuart Savett, Trustees under the Rounick Family Irrevocable
             Insurance Trust dated October 27, 1986, as assignor, and the
             Company, as assignee (2003 Form 10-K Exhibit 10.2-3)

10-2.4       * Agreement of Settlement and General Release dated May 5, 1998
             between Jack 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, 1998 between 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)

</TABLE>

                                      -37-

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.  DESCRIPTION OF DOCUMENT
-----------  -----------------------------------------------------------------------------------------

<S>          <C>
10-3.2       * Split Dollar Insurance Agreement dated July 31, 1987 between the 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. Frank and
             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, 1998
             between 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, 1998 between 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)

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)

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 of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities
             Exchange Act of 1934

31.2         Certification of 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

</TABLE>

                                      -38-

<PAGE>

                                   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 June 2, 2005.

     DEB SHOPS, INC.
     (Registrant)

     By: 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.



Marvin Rounick                                      June 2, 2005
--------------------------------------------
Marvin Rounick, President,
 Chief Executive Officer and Director
 (Principal Executive Officer)

Warren Weiner                                       June 2, 2005
--------------------------------------------
Warren Weiner, Executive Vice President,
 Secretary, Treasurer and Director

Jack Rounick                                        June 2, 2005
--------------------------------------------
Jack A. Rounick, Assistant Secretary
 and Director

Ivan Inerfeld                                       June 2, 2005
--------------------------------------------
Ivan Inerfeld, Director

Barry H. Feinberg                                   June 2, 2005
--------------------------------------------
Barry H. Feinberg, Director

Barry H. Frank                                      June 2, 2005
--------------------------------------------
Barry H. Frank, Esq., Director

Ned J. Kaplin                                       June 2, 2005
--------------------------------------------
Ned J. Kaplin, Director

Barry J. Susson                                     June 2, 2005
--------------------------------------------
Barry J. Susson, Chief Financial Officer

Joan M. Nolan                                       June 2, 2005
--------------------------------------------
Joan M. Nolan, Controller


                                      -39-