<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K
(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, 1999 
                                     ----------------------------

                                       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.

         As of March 31, 1999, 13,198,880 shares of the Company's Common Stock,
par value $.01 per share, were outstanding. The aggregate market value (based
upon the closing price on March 31, 1999) held by non-affiliates was
approximately $41,645,475.

                       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 19, 1999 - incorporated in Part III.


<PAGE>


Forward-Looking Statements

         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 and financial condition. This
report includes, in particular, forward-looking statements regarding 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
margins, respond to changes in fashion, retain key management personnel and
achieve Year 2000 compliance. Such factors may also include other risks and
uncertainties detailed in the Company's other filings with the Securities and
Exchange Commission.

                                     PART 1

Item 1.  Business
-------  --------

General

         Deb Shops, Inc. (the "Company") operates 264 women's specialty apparel
retail stores ("DEB") offering 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 18. In addition to 254 stores operating under the
name "DEB" the Company operates six plus size stores under the name "DEB PLUS"
and four outlet stores under the name "CSO." The outlet stores offer the same
merchandise as DEB and DEB PLUS at reduced prices and serve as clearance stores
for slow-moving inventory. Fifty of the DEB stores contain plus size
departments.

         The Company operates an additional nine apparel retail stores under the
name Tops 'N Bottoms. Tops 'N Bottoms sells moderately priced men's and women's
apparel. Eighteen of the DEB stores contain Tops 'N Bottoms departments.

         The Company also operates 18 retail book stores trading as "Atlantic
Book Warehouse" and "Atlantic Book Shops." The Company operates 12 locations as
"Atlantic Book Shops," which are small, limited selection book stores, generally
open seasonally in Delaware, Maryland, New Jersey and Pennsylvania resort towns.
The Company also operates six "Atlantic Book Warehouses" which carry a full line
of best sellers, new titles and magazines in addition to remainder books. The
Atlantic Book Warehouse stores are located in Delaware, Maryland, Minnesota, New
Jersey and Pennsylvania.

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.

                                       -1-


<PAGE>

         The DEB PLUS division caters to the plus size customer between the ages
of 13 to 18. The merchandise is young looking and the fit is adjusted to the
plus size 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.

         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 merchandise control 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 mark-down
adjustments. This permits the Company 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 Easter 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 year to another. At the end of the season, any unsold, merchandise
is transferred to the Company's CSO stores.

Stores

         During the fiscal year ended January 31, 1999, the Company opened 17
stores (while closing 12 stores). The Company also converted one DEB store to a
DEB PLUS store. The Company also closed one Tops `N Bottoms store and opened one
Tops `N Bottoms department. At the present time, the Company currently plans to
open 15 new stores in fiscal 2000. The current plans include the opening of
three Plus departments in the new stores. The Company is currently scheduled to
close two stores in the first half of fiscal 2000. The Company plans to continue
to evaluate carefully the profitability of individual stores and close those
stores that it believes cannot become profitable or maintain profitability.


                                       -2-


<PAGE>

         The following table shows apparel store openings and closings for the
last five fiscal years.
<TABLE>
<CAPTION>
                                                                  Year Ended January 31,
                                                                  ----------------------

                                            1999           1998           1997           1996           1995
                                            ----           ----           ----           ----           ----
<S>                                          <C>            <C>            <C>            <C>            <C>
Open at beginning of fiscal year .........   269            285            308            341            368
Opened during fiscal year ................    17              5              2              1              8
Closed during fiscal year ................   (13)           (21)           (25)           (34)           (35)
                                            ----           ----           ----           ----           ----

Open at end of fiscal year ...............   273            269            285            308            341
                                            ====           ====           ====           ====           ====
</TABLE>

         The following table shows the states in which the Company's 273
existing apparel stores are located.
<TABLE>
<CAPTION>

<S>                         <C>            <C>                 <C>       <C>               <C>
         New England                        East                         Midwest

         Connecticut          2             Delaware            1        Illinois          17
         Maine                4             Maryland            8        Indiana            9
         Massachusetts        9             New Jersey         12        Iowa               3
         Rhode Island         1             New York           32        Kansas             3
                            ---                                               
                             16             Pennsylvania       41        Kentucky           3
                                            Virginia           12        Michigan          20
                                            West Virginia       6        Minnesota          7
                                                              ---                                  
                                                              112        Missouri           7
                                                                         Nebraska           1
                                                                         North Dakota       2
                                                                         Ohio              23
                                                                         South Dakota       1
                                                                         Wisconsin         12 
                                                                                         ----
                                                                                          108
         South                              West

         Georgia            1               California         2
         North Carolina     1               Colorado           3
         Tennessee          4               Idaho              2
                         ----                                 
                            6               New Mexico         3
                                            Oklahoma           3
                                            Oregon             6
                                            Texas              6
                                            Utah               3
                                            Washington         3 
                                                             ---
                                                              31
</TABLE>

         DEB stores, which average 6,000 square feet, are located primarily in
enclosed regional malls and selected strip shopping centers. DEB stores with
Tops 'N Bottoms or DEB PLUS departments average 8,700 square feet and are
located primarily in enclosed regional malls. Tops 'N Bottoms stores are all
located in enclosed regional malls and range in

                                       -3-


<PAGE>

size from 2,300 to 3,400 square feet. New stores are opened in existing malls,
existing mall expansions, new malls and occasionally strip shopping centers
(although the Company generally is not currently seeking strip shopping center
locations). 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 in cash or check,
with the balance made with MasterCard, Visa or Discover credit cards. For
customer convenience, the Company provides lay-away plans. The Company's policy
is to permit returns of merchandise for exchange or for a 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 and price-marked before being
shipped to the 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 thirty-four employees consisting of
an Assistant Director of Store Operations and Regional and District Managers. A
Regional Manager is responsible for an average of six districts. A District
Manager is responsible for an average of ten 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 40 employees, including the
Senior Vice President, Merchandising; Vice President, Merchandising; Merchandise
Managers and Buyers. 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
apparel categories: sportswear, dresses, coats, lingerie, hosiery, shoes,
accessories and plus sizes.

         At January 31, 1999, the Company had approximately 3,000 employees, 65%
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) which expires on December 31, 2001. The UPIU
represents the Company's warehouse employees. The collective bargaining
agreement covers approximately 85 employees. The Company considers its employee
relations to be good.



                                       -4-
<PAGE>

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.

         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 for the DEB stores 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.

Atlantic Books

         The Atlantic Book chain, which was acquired on October 20, 1995 now
consists of 18 stores including six full-service warehouse stores located in
Delaware, Maryland, Minnesota, New Jersey and Pennsylvania. Atlantic Books
emphasizes convenience, selection and value. The Company considers the warehouse
format to be positioned to capitalize on today's consumers' demands for these
features. Atlantic Book's main concentration is in bargain books that are sold
at significant discounts from publishers' original retail prices. Atlantic also
offers an extensive selection of best sellers and other hard cover and paperback
books and magazines. Each warehouse store is conducive to browsing and shopping;
including the availability of super market-style shopping carts for the customer
who wants to purchase multiple selections.

         Atlantic Books competes with both national super-store chains as well
as local book stores. Atlantic Books offers selections similar to the national
super-stores, in a no-frills atmosphere and at larger discounts.

         The chain trades as Atlantic Book Shops and Atlantic Book Warehouse.
The 12 non-warehouse stores are located in resort areas in Delaware, Maryland,
New Jersey and Pennsylvania. These resort stores range in size from 1,000 to
4,600 square feet. The warehouse stores range in size from 12,000 to 26,000
square feet. The warehouse store in Montgomeryville, PA includes the offices for
the chain.

         The resort stores sell primarily remainder books and some new titles.
The warehouse stores carry a full line of best sellers, new titles, and
magazines in addition to the remainder books.

         The Company intends to expand the book chain principally through the
addition of warehouse stores and the addition of resort stores when appropriate.
The current focus is on stand alone sites and strip shopping centers for the new
stores. Where appropriate, mall locations will also be considered. There are
current plans for opening of one warehouse book store.



                                       -5-
<PAGE>

Item 2.  Properties
-------  ----------

         The Company leases all of its apparel stores and all but one of its
book 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.

         The following table shows the earliest years that executed apparel
store leases, existing at January 31, 1999, can be terminated. In many cases the
Company has renewal options.

          Calendar Years                             Number of Leases Expiring
          --------------                             -------------------------

           1999 - 2000...........................                78
           2001 - 2002...........................                62
           2003 - 2004...........................                67
           2005 - 2006...........................                19
           2007 - 2008...........................                23
           2009 - 2010...........................                17
           2011 and thereafter...............                     7
                                                              -----
                           Total..............                  273
                                                              =====

         The Company leases its warehouse, distribution and office space,
aggregating 280,000 square feet, pursuant to a twenty-year lease which commenced
June 15, 1982. On January 3, 1999, the lease was amended to extend the term for
an additional five years. 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 locations of present stores, see Item 1. Business -
Stores.

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 materially 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.

                                       -6-
<PAGE>


                      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 19, 1999.

         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    59     Director, President and Chief Executive Officer                       1973
Warren Weiner     55     Director, Executive Vice President, Secretary and Treasurer           1973
Allan Laufgraben  60     Senior Vice President, Merchandising                                  1995
Barry Vesotsky    53     Vice President, Merchandising                                         1981
Stanley A. Uhr    53     Vice President, Real Estate and Corporate Counsel                     1988
Lewis Lyons       45     Vice President, Finance, Chief Financial Officer and
                         Assistant Secretary                                                   1992
Stephen P. Smith  39     Vice President - Information Systems                                  1998
Joan M. Nolan     46     Controller                                                            1998
</TABLE>

         Marvin Rounick has been employed by the Company since 1961. Since 1979,
he has served as President and Chief Executive Officer. Prior to that time, he
served as Vice President, Operations and General Merchandise Manager.

         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. For more than five years, prior to
joining the Company he was with Petrie Stores Corporation as Executive Vice
President and with Petrie Retail, Inc. as President and Chief Executive Officer.
Petrie Retail, Inc. filed a petition under the federal backruptcy laws on
October 12, 1995.

         Barry Vesotsky has been employed by the Company since 1970. Since 1981,
he has served as Vice President, Merchandising. From 1978 to 1981, he was a
Buyer and Merchandise Manager with the Company.

         Stanley A. Uhr has been employed by the Company since 1987, first as
Director of Real Estate and Corporate Counsel and, from March 31, 1988, as Vice
President, Real Estate and Corporate Counsel.

         Lewis Lyons has been employed by the Company since 1990, first as
Director of Taxes; from May 20, 1992, as Vice President, Finance; and from May
26, 1993, as Vice President, Finance and Chief Financial Officer and from
October 2, 1995 as Assistant Secretary.

         Stephen P. Smith has been employed by the Company since 1985. From 1985
to 1994 as a programmer and systems analyst; from 1994 to 1995 as Manager
Information Systems; from 1995 to 1998 as Director - Information Systems and
from May 27, 1998 as Vice President - Information Systems.

                                       -7-
<PAGE>

         Joan M. Nolan has been employed by the Company since November 2, 1998
as Controller. From July, 1997 to July, 1998 she was an accounting manager with
Innovest Group, Inc., and from May 1975 to July, 1996 she was Assistant to the
Treasurer for Strawbridge & Clothier.


                                    -PART II
                                    --------

Item 5.  Market for the Registrant's Common
         Stock and Related Stockholder Matters
         -------------------------------------

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.

1999                                                  High           Low
----                                                  ----           ---

First Quarter                                        $8.750        $5.875
Second Quarter                                       11.000         7.000
Third Quarter                                        10.000         6.750
Fourth Quarter                                       15.750         8.375


1998                                                  High           Low
----                                                  ----           ---

First Quarter                                        $5.375        $4.000
Second Quarter                                        4.625         3.625
Third Quarter                                         6.000         3.500
Fourth Quarter                                        6.875         5.250

Holders

         As of March 31, 1999, there were 306 record holders and approximately
1,300 beneficial holders of the Company's Common Stock.

Dividends

         The Company paid regular quarterly dividends for each of the two most
recent fiscal years. During this time period, the per-share amount of these
dividends on Common Stock was $.05 for each such fiscal quarter. The Company
currently intends to follow a policy of regular quarterly cash dividends,
subject to earnings, capital requirements and the operating and financial
condition of the Company, among other factors.


                                       -8-
<PAGE>

Item 6.  Selected Financial Data
-------  -----------------------

         The following selected financial data is derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
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 and ratio data)             1999            1998           1997            1996           1995
----------------------------------------------          ---------        ---------       --------        --------       --------
<S>                                                      <C>              <C>            <C>             <C>            <C>     
Net Sales                                                $234,724         $205,066       $187,493        $176,733       $202,938
Cost of Sales, Including Buying and
     Occupancy Costs                                      164,014          152,343        151,770         142,347        162,000
Income (Loss) before Income Taxes                          24,296           10,237         (5,655)         (6,224)        (4,619)
Net Income (Loss)                                          15,496            6,637         (3,855)         (4,224)        (2,719)
Net Income (Loss) as a Percent of Net Sales                   6.6%            3.2%          (2.1%)          (2.4%)         (1.3%)
Net Income (Loss) Per Common Share - Basic                $  1.18         $    .51       $   (.30)       $   (.33)      $   (.21)
Net Income (Loss) Per Common Share - Diluted                 1.17              .51           (.30)           (.33)          (.21)
Total Assets                                              119,026          103,495         94,531          95,597        106,202
Capital Lease Obligations                                   1,392            1,631          1,827           1,986          2,040
Shareholders' Equity                                       92,157           78,027         74,014          80,493         87,383
Book Value Per Share at Year End                             6.98             6.07           5.76            6.27           6.80
Cash Dividend Per Share of Common  Stock                      .20              .20            .20             .20            .20

Not covered by report of Independent Auditors.
</TABLE>





                                       -9-


<PAGE>
Item 7.
-------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATIONS RESULTS OF OPERATIONS

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 and financial
condition. This report includes, in particular, forward-looking statements
regarding store openings, 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 margins, respond to changes in fashion, find suitable retail locations,
retain key management personnel and achieve Year 2000 compliance. Such factors
may also include other risks and uncertainties detailed in the Company's other
filings with the Securities and Exchange Commission.

Overview

         The Company operates women's specialty retail apparel stores offering
popularly-priced, fashionable, coordinated sportswear, dresses, coats, lingerie,
accessories and shoes for junior and plus-sized women. The Company also operates
Tops `N Bottoms stores which sell moderately priced men's and women's apparel.

         The Company also operates Atlantic Books, a chain of retail book stores
consisting of 18 locations. Six of the stores, trading as Atlantic Book
Warehouse, carry a full line of best sellers, new titles and magazines in
addition to remainder books. The remaining 12 stores, trading as Atlantic Book
Shops, are limited selection book stores, generally open seasonally.

         Results of the Company's operations for the fiscal years ended January
31, 1999 and 1998, are presented on a consolidated and divisional basis to
provide relevant information concerning the Company's retail apparel store
business, which is the Company's principal line of business, and the retail book
business.

Results of Operations - Consolidated

         Consolidated net sales increased $29,658,000 (14.5%) to $234,724,000 in
fiscal 1999 from $205,066,000 in fiscal 1998, and increased $17,573,000 (9.4%)
in fiscal 1998 over fiscal 1997. The increases in fiscal 1999 and 1998 were
primarily the result of increased comparable store sales in the apparel division
and, to a lesser extent, increased sales in the book division.

         The changes in net sales, cost of sales, selling and administrative
expenses and net income (loss) are more fully described in the sections on
"Apparel Business" and "Book Business" that follow.



                                      -10-


<PAGE>

           Other income, principally interest, increased $889,000 (42.4%) to
$2,984,000 in fiscal 1999 from $2,095,000 in fiscal 1998, and increased $39,000
(1.9%) in fiscal 1998 over fiscal 1997. Other income is offset by losses on
disposition of fixed assets. The increase in fiscal 1999 is the result of
earnings on higher cash balances and decreased write-offs from the disposition
of fixed assets. The increase in fiscal 1998 is the result of earnings on higher
cash balances offset by increased write-offs from the disposition of fixed
assets.

         Income before income taxes increased $14,059,000 (137.3%) to
$24,296,000 in fiscal 1999 from $10,237,000 in fiscal 1998, and increased
$15,892,000 (281.0%) in fiscal 1998 over fiscal 1997. The improvement from
fiscal 1998 to fiscal 1999 is comprised of an increase in the operating results
of the apparel business and to a lesser extent by the increase in the operating
results of the book business. The effective income tax provision (benefit) rate
was 36.2% for fiscal 1999, 35.2% for fiscal 1998 and (31.8%) for fiscal 1997.
The effective income tax provision rates for fiscal 1999 and fiscal 1998 are
greater than the statutory rate, primarily as the result of state income tax
expense. The effective tax (benefit) rate for fiscal 1997 is lower than the
statutory rate primarily as the result of the loss incurred and state income tax
expense.

Results of Operations - Apparel Business

         Net sales increased $27,106,000 (14.2%) to $217,595,000 in fiscal 1999
from $190,489,000 in fiscal 1998, and increased $14,073,000 (8.0%) in fiscal
1998 over fiscal 1997. The increase in fiscal 1999 resulted primarily from
increased customer acceptance of the Company's products, which is attributed to
the Company's continual refining of its focus on its younger customers, in
addition to continuing efforts to improve visual merchandising. The increase in
fiscal 1998 was principally attributable to a return of fashion direction in the
women's specialty apparel industry, the Company's new focus on younger
customers, and improved visual merchandising in the stores. These improvements
are evidenced by increases in comparable store sales of 10.1% in fiscal 1999 and
12.6% in fiscal 1998. Management continues to adjust the product mix, pricing
and visual merchandising to further stimulate sales.

         During fiscal 1997 the Company introduced plus sizes into approximately
one-third of the chain. Plus sizes generated sales of approximately $17,155,000
in fiscal 1999, $13,700,000 in fiscal 1998 and $15,000,000 in fiscal 1997. This
strategy offers a larger assortment of merchandise to an expanded customer base
in an effort to increase sales per store. During fiscal 1998 the Company reduced
the number of stores carrying plus sizes by approximately 50% in order to focus
on the appropriate markets and improve the profitability of the plus size
business.

         The following table sets forth certain per store information:
<TABLE>
<CAPTION>
                                                                                   Per Store Data(1)
                                                                                Year Ended January 31,
                                                                      -------------------------------------------
                                                                      1999                1998               1997
                                                                      ----                ----               ----
<S>                                                                    <C>                 <C>                <C>
Stores open at end of the year                                         273                 269                285
Average number in operation during the year                            278                 277                299
Average net sales per store (in thousands)                            $783                $688               $590
Average operating income (loss) per store (in thousands)              $ 74                $ 27              ($ 30)
Comparable store sales(2) - Percent change                            10.1%               12.6%               9.5%
</TABLE>

--------------
(1) Includes Tops 'N Bottoms stores
(2) Comparable store sales includes stores opened for both periods, in the 
    current format and location. A store is added to the comparable store base
    in its 13th month of operation.

                                      -11-
<PAGE>
         Cost of sales, including buying and occupancy costs, increased
$9,981,000 (7.0%) to $152,185,000 in fiscal 1999 from $142,204,000 in fiscal
1998, and decreased ($2,071,000) (1.4%) in fiscal 1998 over fiscal 1997. The
fiscal 1999 increase in cost of sales, including buying and occupancy costs, is
principally due to the increase in net sales partially offset by increasing
margins. The fiscal 1998 decrease in cost of sales, including buying and
occupancy costs, is principally due to the increase in margins related to the
increasing acceptance of the Company's merchandise by the Company's target
customer. As a percentage of net sales, these costs were 69.9% for fiscal 1999,
74.7% for fiscal 1998 and 81.8% for fiscal 1997. For fiscal 1999, the decreased
cost of sales percentage is a result of increased net sales and increased
margins. For fiscal 1998, the decreased cost of sales percentage is principally
a result of increased margins due to the increasing acceptance of our
merchandise by our target customer. Buying and occupancy costs were 16.6%, 17.3%
and 19.5% of net sales for the fiscal years 1999, 1998 and 1997, respectively.
The percentage decrease in fiscal 1999 as compared to fiscal 1998, and in fiscal
1998 as compared to fiscal 1997, is principally a result of increased sales
during these years and the favorable effect of closing under-performing stores
during fiscal 1998 and fiscal 1997.

         Selling and administrative expenses increased $4,483,000 (12.1%) to
$41,647,000 in fiscal 1999 from $37,164,000 in fiscal 1998, and decreased
($259,000) (0.7%) in fiscal 1998 over fiscal 1997. The increase in these
expenses for fiscal 1999 is mainly due to increased costs of personnel and
benefits, partially resulting from an increase in the number of stores and an
increase in average sales per store. The decrease in these expenses for fiscal
1998 is mainly due to cost controls and the reduction in the number of stores.
As a percentage of net sales, these expenses were 19.1%, 19.5% and 21.2% during
fiscal 1999, 1998 and 1997, respectively.

         Depreciation expense decreased ($449,000) to $3,311,000 in fiscal 1999
from $3,760,000 in fiscal 1998, and increased $591,000 in fiscal 1998 over
fiscal 1997. The decrease from fiscal 1998 to fiscal 1999 is principally
attributable to an increase in the amount of fully depreciated assets. The
increase from fiscal 1997 to fiscal 1998 is principally attributable to the
accelerated write-off of leasehold improvements.

         Operating income increased $13,091,000 (177.8%) to $20,452,000 in
fiscal 1999 from $7,361,000 in fiscal 1998, and increased $15,811,000 (187.1%)
in fiscal 1998 over fiscal 1997. As a percentage of net sales, operating income
was 9.4% in fiscal 1999 and 3.9% in fiscal 1998, and the operating (loss) was
(4.8%) in fiscal 1997. In fiscal 1999 and fiscal 1998, the increases in
operating income are primarily the result of an increase in margins as discussed
above.



                                      -12-


<PAGE>

Results of Operations - Book Business

         Fiscal 1997 was the first full year the Company operated its book
business. The book business was acquired and operated for four months during
fiscal 1996.

         Net sales increased $2,552,000 (17.5%) to $17,129,000 in fiscal 1999
from $14,577,000 in fiscal 1998, and increased $3,500,000 (31.6%) in fiscal 1998
over fiscal 1997. The increase in net sales in fiscal 1999 and 1998 resulted
primarily from the opening of new stores and the expansion of existing stores.

         The following table sets forth certain per store information:
<TABLE>
<CAPTION>
                                                                        Per Store Data
                                                                    Year Ended January 31,
                                                           -----------------------------------------

                                                                1999          1998         1997
                                                                ----          ----         ----
<S>                                                             <C>             <C>          <C>
Resort stores open at end of year                               12              11           10
Average number in operation during the year                     11              10           10
Average net sales per Resort Store (in thousands)             $458            $392         $288

Warehouse stores open at end of year                             6               6            5
Average number in operation during the year                      6               5            3
Average net sales per Warehouse Store (in thousands)        $2,015          $2,132       $2,732

Comparable store sales(1) - Percent change                    (1.5%)           1.3%          4.9%
</TABLE>

         Cost of sales, including buying and occupancy costs, increased
$1,690,000 (16.4%) to $12,009,000 in fiscal 1999 from $10,320,000 in fiscal
1998, and increased $2,824,000 (37.7%) in fiscal 1998 over fiscal 1997. The
fiscal 1999 and fiscal 1998 increases in cost of sales, including buying and
occupancy costs, were principally due to increases in net sales during those
periods. As a percentage of net sales, these costs were 70.1%, 70.8% and 67.7%
for fiscal 1999, 1998 and 1997, respectively. For fiscal 1999 the decreased cost
of sales percentage resulted from increased sales and improved margins. For
fiscal 1998, the increased cost of sales percentage resulted from decreased
margin as a result of increased competition and changing product mix. Buying and
occupancy costs were 14.5%, 14.6% and 12.9% of net sales during fiscal 1999,
1998 and 1997, respectively.

         Selling and administrative expenses increased $755,000 (23.7%) to
$3,936,000 in fiscal 1999 from $3,181,000 in fiscal 1998, and increased $668,000
(26.6%) in fiscal 1998 over fiscal 1997. The fiscal 1999 and fiscal 1998
increases in selling and administrative expenses were principally due to the
increase in the number of stores. As a percentage of net sales, these expenses
were 23.0%, 21.8% and

--------------------------------------
(1) Comparable store sales include stores opened for both periods in the current
    format and location. A store is added to the comparable store base in its
    13th month of operation. The "Percentage Change" for fiscal 1997 represents
    the comparison of the period, from the date of acquisition to January 31,
    1996, with the same period in fiscal 1997.


                                      -13-
<PAGE>


22.7% for fiscal 1999, 1998 and 1997, respectively. For fiscal 1999 the
increased selling and administrative percentage resulted from increased
personnel and warehousing costs partially resulting from an increase in the
number of stores, the expansion of stores and increased sales volume. For fiscal
1998 the decreased selling and administrative percentage resulted primarily from
increased net sales.

         Depreciation and amortization expense increased $28,000 to $443,000 in
fiscal 1999 from $415,000 in fiscal 1998 and increased $93,000 in fiscal 1998
over fiscal 1997. The increases are principally attributable to the opening of
new stores and expansion of existing stores.

         Operating income increased $79,000 (12.0%) to $741,000 in fiscal 1999
from $662,000 in fiscal 1998, and decreased ($84,000) (11.3%) in fiscal 1998
from fiscal 1997. In fiscal 1999 the increase in operating income was primarily
the result of increased sales and margins partially offset by increased selling
and administrative expenses. In fiscal 1998 the decrease in operating income was
primarily the result of decreased margins caused by increased competition,
changing product mix and increased depreciation and amortization expenses due to
new store openings and expansions. This decrease was partially offset by
decreased selling and administrative expenses as a percentage of sales. As a
percentage of net sales, operating income was 4.3%, 4.5% and 6.7% in fiscal
1999, 1998 and 1997, respectively.

Liquidity and Capital Resources - Consolidated

         As of January 31, 1999, the Company had cash and cash equivalents of
$70,228,000 compared to $57,913,000 as of January 31, 1998, and $44,851,000 as
of January 31, 1997. These funds are invested principally in money market mutual
funds and short-term municipal bonds, all of which are fully insured or
guaranteed by letters-of-credit. 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
apparel and book stores and the remodeling of existing apparel and book stores.
Total cash provided by or (used in) operating activities, for fiscal years ended
January 31, 1999, 1998 and 1997, was $17,831,000, $17,904,000 and ($178,000),
respectively. For fiscal 1999, cash provided by operating activities was the
result of the fiscal 1999 net income increased by non-cash charges for
depreciation and amortization and changes in operating assets and liabilities,
including an increase in accrued expenses and income taxes payable offset by an
increase in merchandise inventories. For fiscal 1998, cash provided by operating
activities was the result of the fiscal 1998 net income increased by non-cash
charges for depreciation and amortization and changes in operating assets and
liabilities, including an increase in trade accounts payable and income taxes
payable. The inventory turn-over rate for the apparel business was approximately
3.4, 3.1 and 4.3 times for the fiscal years ended January 31, 1999, 1998 and
1997, respectively. The inventory turn-over rate for the book business was
approximately 1.5, 1.3 and 1.5 times for the fiscal years ended January 31,
1999, 1998 and 1997, respectively.

         Net cash used in investing activities was $3,910,000, $2,023,000 and
$3,756,000 for the fiscal years ended January 31, 1999, 1998 and 1997,
respectively. During these fiscal years, these funds were principally used in
the purchase of property, plant and equipment additions to open new apparel and
book stores and to remodel and/or expand existing stores.


                                      -14-
<PAGE>

            Net cash used in financing activities was $1,606,000, $2,819,000 and
$2,784,000 for the fiscal years ended January 31, 1999, 1998 and 1997,
respectively. For fiscal 1999 these funds were principally used for the payment
of dividends on preferred and common stock, partially offset by the proceeds
from the exercise of stock options. During fiscal 1998 and 1997 these funds were
principally used for the payment of dividends on preferred and common stock.

         The Company opened a "Plus Size" operation during April 1996 in
approximately one-third of its stores. The Company hired a buying staff,
remodeled certain locations, and purchased inventory. At the end of the first
quarter of fiscal 1998, the Company reduced the size of the "Plus Size"
operation by approximately 50%.

         As of June 30, 1996, the Company terminated its private label credit
card program. The Company paid a termination fee of $560,000. The bank has
assumed all future obligations associated with the portfolio. The Company
continues to accept third-party credit cards at all of its stores.

         In February 1998, the Company purchased nine stores from Petrie Retail,
Inc. and subsidiaries, for $720,000. These locations were made available as a
result of Petrie's ongoing bankruptcy proceedings. The stores are located in
regional malls and were opened in the first quarter of fiscal 1999.

         The Company's present intention is to expand the book store business,
principally by opening additional warehouse stores. Opening a warehouse
bookstore is capital-intensive because of the leasehold improvements and initial
inventory required. The Company anticipates that the funds to finance this
expansion will come from cash and cash equivalents on hand. During fiscal 1998,
the Company opened one warehouse store, and during fiscal 1997, the Company
opened two warehouse stores. One of these locations was purchased in May 1996
for approximately $2,100,000. It is not the Company's intention to purchase
store locations; however, when the location and economics are suitable, such
transactions will be evaluated.

         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.

YEAR 2000 READINESS DISCLOSURE

         The Year 2000 issue exists because many software programs, computer
hardware, operating systems and microprocessor-based embedded controls in
automated equipment use two-digit date fields to designate a year. As the
century date change occurs, date-sensitive systems may recognize the year 2000
as the year 1900, or not at all. This inability to recognize or properly treat
the year 2000 may cause systems to process financial and operational information
incorrectly or fail to operate.

         The operation of the Company's business is dependent, in part, on its
computer software programs and operating systems (collectively, "Programs and
Systems"). The Programs and Systems are used in several key areas of the
Company's business, including merchandising, inventory management, pricing,
sales, distribution, financial reporting, as well

                                      -15-
<PAGE>

as in various administrative functions. The Company has been evaluating its
Programs and Systems to identify potential Year 2000 compliance issues. These
actions are necessary to ensure that the Programs and Systems will recognize
dates and process information in the Year 2000 and beyond. It is anticipated
that remediation of some of the Company's Programs and Systems and replacement
of some of the Company's Programs and Systems will be necessary to make such
Programs and Systems Year 2000 compliant. As part of its evaluation, the Company
reviewed both Information Technology ("IT") and non-"IT" systems. The Company
has concluded that non-"IT" systems are not significant to the ongoing operation
of its business. Although the Company is not currently aware of material Year
2000 compliance issues relating to systems of other companies with which the
Company does business, there is no assurance that the Company will not be
materially adversely affected by such issues affecting the systems of such other
companies.

         As of January 31, 1999 the status of the Company's progress toward
becoming Year 2000 compliant was as follows:

<TABLE>
<CAPTION>

                            Estimated       Estimated    Approximate Amount  Estimated Completion
System                     % Complete       Total Cost    Expended to Date   Date - Quarter Ending
------                     ----------       ----------    ----------------  ----------------------
<S>                              <C>        <C>               <C>                 <C> 
Financial                        98%        $500,000          $475,000            April, 1999
P.C. & Mainframe
  including operating
  systems                        75%         250,000           155,000             July, 1999
Merchandising/
Distribution/
Warehousing                      50%         175,000            35,000             July, 1999
                                             -------          --------
                                            $925,000          $665,000
                                            ========          ========
</TABLE>
         These projects will be funded from internally generated funds. The
Company believes that it will be able to achieve Year 2000 compliance through
the remediation of some Programs and Systems and through the replacement of
other Programs and Systems. However, no assurance can be given that these
efforts will be successful, or that the Company will not be materially adversely
affected by any failures of these remediation and replacement projects.

         Management of the Company believes that it has an effective program in
place to resolve the Year 2000 issue in a timely manner. As noted above, the
Company has not yet completed all necessary phases of its Year 2000 plan.
Because of the range of possible issues and the large number of variables
involved, it is impossible to quantify the potential cost of problems should the
Company or its trading partners not properly complete their Year 2000 plans or
become Year 2000 compliant. Such costs and any failure of compliance efforts
could have a material adverse effect on the Company. The Company believes that
the most likely risks of serious Year 2000 business disruption are from outside
parties, such as utility companies, financial institutions, telecommunications
and transportation services. In the event the Company does not properly complete
its Year 2000 efforts or is affected by the disruption of outside services, the
Company could be unable to conduct its business. In addition, disruptions in the
economy generally resulting from Year 2000 issues could have a material adverse
effect on the Company.


                                      -16-


<PAGE>

         The Company has not developed contingency plans. Development of such
plans will be considered if the Company believes that its replacement and
remediation efforts may not be completed on a timely basis or it determines that
the inability of third parties to complete their Year 2000 resolution process
will materially affect the Company.

Seasonal Nature of Operations

         Approximately 54% and 73% of the Company's net sales and net income,
respectively, for fiscal 1999 occurred during the last six months, as compared
to 55% and 104%, respectively, in the prior fiscal year. The last six months
include the Back-to-School and Christmas selling seasons. See "Quarterly
Financial Information (Unaudited)," and the preceding discussion on "Results of
Operations."




Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
--------  ----------------------------------------------------------



         The required information, with respect to Market Risk, is contained in
Item 7 in the section on Liquidity and Capital Resources.





                                      -17-


<PAGE>

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

                REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

To the Board of Directors
of Deb Shops, Inc.

We have audited the accompanying consolidated balance sheet of Deb Shops, Inc.
and subsidiaries as of January 31, 1999, and the related consolidated statements
of operations, shareholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The consolidated financial statements of Deb Shops, Inc. and
subsidiaries as of January 31, 1998 and for the years ended January 31, 1998 and
1997, were audited by other auditors whose report dated February 27, 1998
expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Deb Shops, Inc. and subsidiaries as of January 31, 1999, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.

                                                      ERNST & YOUNG LLP

Philadelphia, Pennsylvania
March 4, 1999


                                      -18-


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
of Deb Shops, Inc.:

We have audited the accompanying consolidated balance sheets of Deb Shops, Inc.
(a Pennsylvania corporation) and subsidiaries as of January 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides, a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Deb
Shops, Inc. and subsidiaries as of January 31, 1998, and the results of their
operations and their cash flows for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.

                                                          ARTHUR ANDERSEN, LLP

Philadelphia, Pennsylvania
   February 27, 1998



                                      -19-


<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                        Year Ended January 31,
                                                     -------------------------------------------------------------
                                                          1999                    1998                    1997
------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                     <C>                     <C>         
Net Sales                                             $234,723,932            $205,066,028            $187,492,861
                                                     -------------           -------------           -------------
Costs and Expenses
  Cost of sales, including buying
    and occupancy costs                                164,014,391             152,343,401             151,770,240
  Selling and administrative                            45,583,150              40,345,285              39,942,791
  Depreciation and amortization                          3,814,034               4,235,537               3,490,816
                                                     -------------           -------------           -------------
                                                       213,411,575             196,924,223             195,203,847
                                                     -------------           -------------           -------------

Operating Income (Loss)                                 21,312,357               8,141,805              (7,710,986)
Other Income, Principally Interest                       2,983,782               2,094,987               2,056,177
                                                     -------------           -------------           -------------


Income (Loss) Before Income Taxes                       24,296,139              10,236,792              (5,654,809)
Income Tax Provision (Benefit)                           8,800,000               3,600,000              (1,800,000)
                                                     -------------           -------------           --------------
Net Income (Loss)                                     $ 15,496,139            $  6,636,792           ($  3,854,809)
                                                     =============           =============           ==============

Net Income (Loss) Available               
Per Common Share
                            Basic                     $       1.18            $        .51           ($        .30)
                                                     =============           =============           ==============
                            Diluted                   $       1.17            $        .51           ($        .30)
                                                     =============           =============           ==============
Weighted Average Number of
Common Shares Outstanding
                            Basic                       13,057,108              12,844,680              12,844,680
                                                     =============           =============           =============
                            Diluted                     13,214,869              12,947,341              12,844,680
                                                     =============           =============           =============
</TABLE>

The notes to consolidated financial statements are an integral part of these
financial statements.



                                      -20-

<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                                January 31,
                                                                                   -------------------------------------
                                                                                      1999                     1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                      <C>        
ASSETS
Current Assets
  Cash and cash equivalents                                                        $70,228,227              $57,912,689
  Merchandise inventories                                                           23,934,155               22,107,228
  Prepaid expenses and other                                                         2,083,285                1,488,748
  Deferred income taxes                                                              1,706,050                1,307,600
                                                                                    ----------               ----------
    Total current assets                                                            97,951,717               82,816,265
                                                                                    ----------               ----------
Property, Plant and Equipment - at cost
  Land                                                                                 150,000                  150,000
  Buildings                                                                          4,338,863                4,338,863
  Leasehold improvements                                                            29,416,173               29,068,033
  Furniture and equipment                                                           16,649,890               15,399,733
                                                                                    ----------               ----------
                                                                                    50,554,926               48,956,629

  Less accumulated depreciation and amortization                                    36,202,184               34,168,084
                                                                                    ----------               ----------
                                                                                    14,352,742               14,788,545
                                                                                    ----------               ----------
Other Assets
  Goodwill, net of accumulated amortization of $714,120
     and $499,884, respectively                                                      2,504,285                2,718,521
  Deferred income taxes                                                              2,505,290                2,003,740
  Other                                                                              1,712,223                1,167,514
                                                                                     ---------                ---------
    Total other assets                                                               6,721,798                5,889,775
                                                                                     ---------                ---------
                                                                                  $119,026,257             $103,494,585
                                                                                  ============             ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Trade accounts payable                                                           $16,090,608              $16,098,296
  Accrued expenses                                                                   6,658,918                5,879,551
  Income taxes payable                                                               2,727,892                1,858,379
                                                                                  ------------             ------------
    Total current liabilities                                                       25,477,418               23,836,226
                                                                                  ------------             ------------
Capital Lease Obligation                                                             1,392,255                1,631,463
                                                                                  ------------             ------------

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 - 25,000,000 shares
    Issued shares-1999: 15,688,290; 1998: 15,688,290                                   156,883                  156,883
  Additional paid-in capital                                                         5,541,944                5,541,944
  Retained earnings                                                                101,844,410               89,904,032
                                                                                   -----------               ----------
                                                                                   107,543,697               95,603,319
Less common treasury shares, at cost -
  1999: 2,489,410; 1998: 2,843,610                                                  15,387,113               17,576,423
                                                                                    ----------               ----------
                                                                                    92,156,584               78,026,896
                                                                                    ----------               ----------
                                                                                  $119,026,257             $103,494,585
                                                                                  ============             ============
</TABLE>

The notes to consolidated financial statements are an integral part of these
financial statements.

                                      -21-
<PAGE>
                        DEB SHOPS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                Additional
                                                 Preferred        Common          Paid-In          Retained           Treasury
                                                   Stock          Stock           Capital          Earnings             Stock
                                                -----------------------------------------------------------------------------------
<S>                                                <C>           <C>             <C>              <C>                <C>          
Balance January 31, 1996                           $460          $156,883        $5,541,944       $92,370,321        ($17,576,423)
Net (loss)                                                                                        (3,854,809)
Dividends on preferred stock ($120 per share)                                                        (55,200)
Dividends on common stock ($.20 per share)                                                        (2,568,936)
                                                -----------------------------------------------------------------------------------
Balance January 31, 1997                            460           156,883         5,541,944        85,891,376         (17,576,423)

Net income                                                                                          6,636,792
Dividends on preferred stock ($120 per share)                                                        (55,200)
Dividends on common stock ($.20 per share)                                                        (2,568,936)
                                                -----------------------------------------------------------------------------------
Balance January 31, 1998                            460           156,883         5,541,944        89,904,032         (17,576,423)

Net Income                                                                                         15,496,139
Dividends on preferred stock ($120 per share)                                                        (55,200)
Dividends on common stock ($.20 per share)                                                        (2,622,401)
Stock options exercised                                                                             (878,160)            2,189,310
                                                -----------------------------------------------------------------------------------
Balance January 31, 1999                           $460         $156,883        $5,541,944      $101,844,410         ($15,387,113)
                                                   ====         =========       ===========     =============        =============
</TABLE>

The notes to consolidated financial statements are an integral part of these
financial statements.

                                      -22-

<PAGE>

                        DEB SHOPS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                            Year Ended January 31,
                                                            --------------------------------------------------
                                                                  1999              1998               1997
--------------------------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>               <C>  
Cash flows from operating activities:        
  Net income (loss)                                          $ 15,496,139      $  6,636,792      ($ 3,854,809)
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities:
     Depreciation and amortization                              3,814,034         4,235,537         3,490,816
     Deferred income tax (benefit)                               (900,000)         (700,000)         (600,000)
       Loss on retirement of property, plant and

            Equipment                                             201,076           516,844           331,743
  Changes in operating assets and liabilities
            Excluding the effects of acquisition:
     (Increase) decrease in merchandise inventories            (1,826,927)          799,844        (6,251,126)
     (Increase) decrease in prepaid expenses & other             (594,537)        1,268,560         1,133,402
     (Decrease) increase in trade accounts payable                 (7,688)        2,306,016         5,207,070
     Increase in accrued expenses                                 779,367           982,142           364,608
     Increase in income taxes payable                             869,513         1,858,379              --
                                                             ------------      ------------      ------------
     Net cash provided by (used in) operating activities       17,830,977        17,904,114          (178,296)
                                                             ------------      ------------      ------------

Cash flows from investing activities:
  Increase in other assets                                       (544,709)              --                --
  Purchases of property, plant and equipment                   (3,365,071)       (2,022,860)       (3,756,231)
                                                             ------------      ------------      ------------
     Net cash used in investing activities                     (3,909,780)       (2,022,860)       (3,756,231)
                                                             ------------      ------------      ------------

Cash flows from financing activities:
  Preferred stock cash dividends paid                             (55,200)          (55,200)          (55,200)
  Common stock cash dividends paid                             (2,622,401)       (2,568,936)       (2,568,936)
  Proceeds from exercise of stock options                       1,311,150                --                --   
  Principal payments under capital lease obligations             (239,208)         (195,324)         (159,480)
                                                             ------------      ------------      ------------
     Net cash used in financing activities                     (1,605,659)       (2,819,460)       (2,783,616)
                                                             ------------      ------------      ------------

 Increase (decrease) in cash and cash equivalents              12,315,538        13,061,794        (6,718,143)
 Cash and cash equivalents at beginning of year                57,912,689        44,850,895        51,569,038
                                                             ------------      ------------      ------------
 Cash and cash equivalents at end of year                    $ 70,228,227      $ 57,912,689      $ 44,850,895
                                                             ============      ============      ============
Supplemental disclosures of cash flow information:
 Cash paid (refunded) during
  the year for:
    Interest on capital lease obligation                     $    311,792      $    354,676      $    390,520
    Income taxes, net                                        $  8,937,812      $  1,151,476      ($ 2,278,742)
</TABLE>


The notes to consolidated financial statements are an integral part of these
financial statements.

                                      -23-

<PAGE>

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

- A - SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES

Consolidation: The consolidated financial statements of Deb Shops, Inc. ("the
Company") include the accounts of the Company and its subsidiaries, after
elimination of all inter-company transactions and accounts.

Background: The Company retails popularly priced fashion apparel for junior and
plus sized females and males through 273 stores. The Company's stores are
located in regional malls and strip shopping centers principally located in the
east and mid-western regions of the country. The Company also operates a chain
of 18 bookstores located in Delaware, Maryland, Minnesota, New Jersey and
Pennsylvania.

Management Estimates: The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles 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: Revenues from merchandise sales are net of returns and
allowances and exclude sales tax.

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. Book inventories are stated at the lower of cost (first-in, first-out
method) or market.

Property, Plant and Equipment: The provisions for depreciation and amortization
are computed using the straight-line method based upon estimated useful lives of
the assets. Leasehold improvements are amortized over the initial term of the
lease. Furniture and equipment is depreciated over seven years or the lease
term, whichever is less. Gain or loss on disposition of property, plant and
equipment is included in other income. Depreciation expense, which includes
depreciation on a capitalized asset, for the years ended January 31, 1999, 1998
and 1997 was $3,600,000, $4,021,000 and $3,277,000, respectively.

Cost in Excess of Net Assets Acquired (Goodwill): The Company amortizes costs in
excess of fair market value of net assets of businesses acquired using the
straight-line method over a period of fifteen years. The Company evaluates
whether changes have occurred that would require revision of the remaining
estimated useful life of the assigned goodwill or render the goodwill not
recoverable.


                                      -24-


<PAGE>

Statements of Cash Flows: The Company considers all highly liquid investments
with an original maturity of less than three months to be cash equivalents.
Included in cash and cash equivalents at January 31, 1999 is $66,885,000 of
investments in money market mutual funds and short-term municipal bonds. They
are carried at cost, which approximates market.

Recently Issued Accounting Pronouncements: In March 1998, the Accounting
Standards Executive Committee issued Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires all costs related to the development of
internal use software other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and amortized over
the estimated useful life of the software. SOP 98-1 is effective for the
Company's first quarter ending April 30, 1999. Adoption is not expected to have
a material effect on the Company's consolidated financial statements.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for years beginning after June 16, 1999. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
market value. Changes in the fair market value of derivatives are recorded each
period in current earnings or other comprehensive income depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the type of
hedge transaction. Adoption is not expected to have a material effect on the
Company's consolidated financial statements.






                                      -25-


<PAGE>

- B - EARNINGS PER SHARE

         The table below sets forth the  reconciliation  of the  numerators  and
denominators  of the basic and  diluted  net  income  (loss)  per  common  share
computations.
<TABLE>
<CAPTION>
                                                             Year Ended January 31,
                                      ----------------------------------------------------------------
                                          1999                      1998                      1997
                                      ----------------------------------------------------------------
<S>                                   <C>                        <C>                     <C>         
Net income (loss)                     $15,496,139                $6,636,792              ($3,854,809)

Dividends on preferred stock              (55,200)                  (55,200)                 (55,200)
                                      ----------------------------------------------------------------

Income (loss) available to
    Common shareholders               $15,440,939                $6,581,592              ($3,910,009)
                                      ===========              ============             =============

Basic weighted average
     number of common
     shares outstanding                13,057,108                12,844,680               12,844,680

Effect of dilutive stock options          157,761                   102,661                        -
                                      ----------------------------------------------------------------
Diluted weighted average
     number of common
     shares outstanding                13,214,869                12,947,341               12,844,680
                                      ===========              ============             ============
</TABLE>

         As of January 31, 1998, 165,000 common stock options were outstanding
but were not included in the computation of diluted net income per common share
because the exercise price was greater than the average market price of the
Company's common shares during the year. As of January 31, 1997 390,000 common
stock options were outstanding but were not included in the computation of
diluted net (loss) per common share because their effect would be anti-dilutive
as a result of the Company's loss incurred during that year.




                                      -26-
<PAGE>

- C - INCOME TAXES

         Income tax provision (benefit) consists of the following components:
<TABLE>
<CAPTION>
                                                                    Year Ended January 31,
                                                  -------------------------------------------------------
                                                       1999                 1998                  1997
---------------------------------------------------------------------------------------------------------
<S>                                                <C>                  <C>                  <C>         
Current:
 Federal........................................   $8,700,000           $4,050,000           ($1,450,000)
 State..........................................    1,000,000              250,000               250,000
                                                  -----------          -----------           -----------
                                                    9,700,000            4,300,000            (1,200,000)
                                                  -----------          -----------           ----------- 
Deferred:
 Federal........................................     (350,000)            (650,000)             (550,000)
 State..........................................     (550,000)             (50,000)              (50,000)
                                                  -----------          -----------           ----------- 
                                                     (900,000)            (700,000)             (600,000)
                                                  -----------          -----------           ----------- 
                                                   $8,800,000           $3,600,000           ($1,800,000)
                                                  ===========          ===========           =========== 
</TABLE>
         The tax benefit generated during fiscal 1997 has been realized by
carrying back the loss to income generated during previous years. The refund was
included in prepaid expenses.

         A reconciliation of the Company's effective income tax rate with the
statutory federal rate follows:
<TABLE>
<CAPTION>

                                                                     Year Ended January 31,
                                                    ------------------------------------------------------
                                                         1999                 1998                 1997
-----------------------------------------------------------------------------------------------------------
<S>                                                  <C>                   <C>                 <C>         
Tax provision (benefit) at statutory rate            $8,504,000            $3,481,000          ($1,923,000)
State income taxes,
      net of federal tax                                293,000               132,000              132,000
Other                                                     3,000               (13,000)             ( 9,000)
                                                    -----------           -----------          ------------
                                                     $8,800,000            $3,600,000          ($1,800,000)
                                                    ===========           ===========          ============
</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,
                                                 -------------------------------------------------
                                                            1999                          1998
--------------------------------------------------------------------------------------------------
<S>                                                     <C>                          <C> 
Deferred Tax Assets
         Uniform cost capitalization                    $   632,000                  $   502,000
         Capital lease obligation                           292,000                      353,000
         Deferred rent                                      286,000                      286,000
         Depreciation                                     2,213,000                    1,650,000
         Accrued expenses                                 1,003,000                      733,000
                                                          4,426,000                    3,524,000
                                                        -----------                  -----------
Deferred Tax Liabilities
         Prepaid expenses                                  (215,000)                    (213,000)
                                                        -----------                  -----------
                                                        $ 4,211,000                  $ 3,311,000
                                                        ===========                  ===========
</TABLE>
                                      -27-


<PAGE>

- D - LEASES

         The Company leases all of its retail apparel stores and all but one of
its book stores for periods ranging from one to 25 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. 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 warehouse
bookstore in Montgomeryville, Pennsylvania is leased from a partnership whose
partners are Mark Simon, an employee and officer of the book subsidiary, and
Martin Simon, a consultant to the book subsidiary.

         Under the terms of the warehouse and office building lease, the Company
is required to pay annual rentals as reflected under "Capital Lease" in the
lease table below. The lease term is 20 years and requires the Company to pay
all real estate taxes, utilities and maintenance costs. The warehouse and office
building lease has a net book value of $397,000 at January 31, 1999 and is
accounted for as a capital lease. Asset amounts are included in buildings and
improvements and are depreciated over 20 years.

         Interest expense related to the capital lease obligation amounted to
$312,000, $355,000 and $391,000 for the years ended January 31, 1999, 1998 and
1997, respectively, and is included in selling and administrative expenses.

         In February 1998, the Company purchased nine stores from Petrie Retail,
Inc. and subsidiaries for $720,000. These locations were made available as a
result of Petrie's ongoing bankruptcy proceedings. These stores are located in
regional malls and opened in the first quarter of fiscal 1999. The future
minimum rental commitment for these stores was approximately $7,400,000 at the
date of purchase.

         Future minimum rental commitments for all non-cancelable leases at
January 31, 1999 are as follows:
<TABLE>
<CAPTION>
                                                             Capital           Operating
                                                              Lease              Leases
-----------------------------------------------------------------------------------------
<S>                                                          <C>             <C>
Fiscal Year Ending January 31,   
2000....................................                     $550,000        $ 15,452,000  
2001....................................                      550,000          13,996,000
2002....................................                      550,000          12,122,000
2003....................................                      230,000          10,295,000
2004....................................                          ---           8,486,000
Thereafter...........................                             ---          25,190,000
                                                             --------          ----------
                                                                             
Total minimum rental commitments........                    1,880,000        $ 85,541,000
                                                                               ==========
                                                                             
Imputed interest.....................                     (  487,745)        
                                                           ----------        
                                                                             
Present value of net minimum                                                 
  lease payments........................                  $1,392,255         
                                                          ==========         
</TABLE> 


                                      -28-
<PAGE>

         Total rental expense under operating leases amounted to $19,824,000,
$17,450,000 and $17,944,000 in fiscal 1999, 1998 and 1997, respectively. Such
amounts include contingent rentals based upon a percentage of sales of
$2,992,000, $2,026,000 and $1,650,000 in fiscal 1999, 1998 and 1997,
respectively.

- E- STOCK OPTION PLAN

         Effective October 1995, the Company adopted an Incentive Stock Option
Plan ("the Plan"). A Stock Option Committee designated by the Board of Directors
administers the Plan. Under the Plan, a maximum of 2,000,000 shares of the
Company's common stock, par value $.01 per share, may be issued by the Company
and sold to selected key employees on the basis of contribution to the
operations of the Company. The price payable for the shares of common stock
under each stock option will be fixed by the 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
Committee may specify. The granted options expire through January 2004. There
were 1,150,000 shares reserved for future grant under the plan.
<TABLE>
<CAPTION>
                                                                         Weighted    
                                                                          Average
                                                              Shares   Exercise Price
                                                             
<S>                                                          <C>          <C>  
Outstanding, January 31, 1996........................         355,000      $3.27
         Granted during period (at $3.25 per share)..          35,000      $3.25
                                                             --------     ------
                                                             
                                                             
Outstanding, January 31, 1997........................         390,000       3.27
         Granted during period (at $6.00 per share)..         165,000       6.00
                                                             --------     ------
                                                             
                                                             
Outstanding, January 31, 1998........................         555,000       4.08
         Granted during period (at $7.00 per share)..         305,000       7.00
         Canceled during period......................        ( 10,000)     (6.00)
         Exercised during period.....................        (354,200)     (3.70) 
                                                             --------     ------
         Outstanding, January 31, 1999...............         495,800      $6.11 
                                                             ========     ======

                                  Outstanding Options                                    Exercisable Options
                                  -------------------                                    -------------------
                                               Weighted
                                                Average            Weighted                           Weighted
                                               Remaining            Average                           Average
         Exercise                             Contractual          Exercise                           Exercise
       Price Range             Number             Life               Price            Number           Price
       -----------             ------             ----               -----            ------           -----

          $3.25                90,800          2.0 years             $3.25            40,800           $3.25
      $6.00 - $7.00           405,000          5.0 years             $6.75            22,500           $6.00
</TABLE>


                                      -29-
<PAGE>

         The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and the related interpretations in
accounting for its stock option plan. In 1995, the FASB issued SFAS No. 123
"Accounting for Stock Based Compensation." SFAS No. 123 established a fair value
based method of accounting for stock-based compensation plans.

         Option valuation models use highly subjective assumptions to determine
the fair value of traded options with no vesting or trading restrictions.
Because options granted under the Company's Stock Option Plan have vesting
requirements and cannot be traded, and because changes in assumptions can
materially affect the fair value estimate, in management's opinion, the existing
valuation models do not necessarily provide a reliable measure of the fair value
of its employee stock options.

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The model uses the following
assumptions: risk free interest rates ranging from 4.2% to 6.0%, a volatility
factor of 41.7% to 52.8%, expected dividend yield of 2.9% to 6.2%, and an
expected life of five years for the options.

         For purposes of pro forma disclosure, the estimated fair value of the
options ($2.34, $2.41 and $1.03, for the 1999, 1998 and 1997 grants,
respectively) is amortized to expense over the options assumed vesting period.
SFAS No. 123 requires only that the income effects of options granted beginning
in fiscal 1996 be included in the pro forma disclosure. Since a portion of the
Company's stock options vest over several years and additional options may be
granted each year, the pro forma effect on net income reported below is not
representative of the effect of fair value stock option expense on future years'
pro forma net income.

         Had the Company recognized compensation cost for its stock option plan
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
and basic and diluted net income (loss) per common share would have been
adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
                                                          Year Ended January 31,
                                                          ----------------------
                                                1999                1998                1997
                                                ----                ----                ----
<S>                                         <C>                  <C>                <C>         
 Pro forma net income (loss)                $15,271,556          $6,535,730         ($3,955,276)
 Pro forma basic net income (loss)
           per common share                 $      1.17          $      .50         ($      .31)
 Pro forma  diluted net income (loss)
           per common share                 $      1.16          $      .50         ($      .31)
</TABLE>


- F - RESTRICTED STOCK INCENTIVE PLAN

         Effective June 1, 1990, the Company adopted a Restricted Stock
Incentive Plan (RSIP) administered by the Company's Stock Option Committee.
Under the RSIP a maximum 300,000 shares of the Company's Common Stock may be
awarded as bonuses to key employees. No more than 100,000 shares may be issued
under this plan during any calendar year. Upon

                                      -30-


<PAGE>

grant, the shares shall be registered in the name of the recipient who shall
have the right to vote the shares and receive cash dividends. The right to
receive the certificates and retain the shares does not vest until the grantee
has remained in the employ of the Company for a period determined by the Stock
Option Committee. At the time of the vesting, a portion of the shares may be
withheld to cover withholding taxes due on the compensation income resulting
from the grant.

         In fiscal 1999, 1998 and 1997, no shares were granted under the RSIP.
At January 31, 1999 there were 206,000 shares reserved for future grant. The
RSIP expires May 31, 2000.


- G- COMMITMENTS AND CONTINGENCIES

         The Company has an unsecured line of credit in the amount of
$20,000,000 at January 31, 1999. Of this amount, $2,150,000 was outstanding as
letters of credit for the purchase of inventory.

         The Company entered into a five-year agreement with a bank during
fiscal 1994 for the use of a private label credit card bearing the Company's
name. The Company paid a fee based on a percent of sales. The agreement was
terminated as of June 30, 1996 and the Company incurred a termination fee of
$560,000. The bank has assumed all future obligations associated with the
portfolio.

         The Company entered into an employment agreement with a key employee
during fiscal 1996, which was modified and extended in fiscal 1999 and provides
for a base salary plus a bonus of 4% of the improvement in the operating results
of the apparel business. The bonus is applicable through fiscal year 2002. The
Company also entered into a bonus agreement with a key employee during fiscal
1996 which provides for a bonus of 2% of the improvement in operating results of
the apparel business. No payment was required in fiscal 1997 under either
agreement. In fiscal 1998 and 1999, bonuses of $450,000, in the aggregate, for
each year, were earned under the agreements. The amount is included in accrued
expenses on the accompanying consolidated balance sheet as of January 31, 1999
and 1998.

         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 will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.







                                      -31-
<PAGE>

                                 Deb Shops, Inc.
                         Quarterly Financial Information
                                   (Unaudited)
<TABLE>
<CAPTION>

(amounts in thousands except per share data)           First           Second             Third           Fourth
                                                      Quarter          Quarter           Quarter          Quarter
------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>               <C>               <C>    
Net sales
  1999                                                $49,759          $58,488           $60,007           $66,470
  1998                                                $43,929          $48,580           $52,409           $60,148
Cost of sales, including buying
  and occupancy costs
  1999                                                $38,374          $41,034           $44,350           $40,256
  1998                                                $35,943          $35,993           $40,207           $40,200
Net income (loss)
  1999                                                $   402          $ 3,814           $ 2,491           $ 8,789
  1998                                               ($ 1,530)         $ 1,256           $   978           $ 5,933
Basic net income (loss) per share
  1999                                                $   .03          $   .29           $   .19           $   .67
  1998                                               ($   .12)         $   .10           $   .08           $   .46
Diluted net income (loss) per share
  1999                                                $   .03          $   .29           $   .19           $   .66
  1998                                               ($   .12)         $   .10           $   .07           $   .45
Cash dividends per common share
  1999                                                $   .05          $   .05           $   .05           $   .05
  1998                                                $   .05          $   .05           $   .05           $   .05

</TABLE>





                                      -32-


<PAGE>

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

         None, except for change in accountants previously reported on Form 8-K
filed on June 12, 1998.


                                    PART III


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

         The required information with respect to each director is contained in
the Company's Definitive Proxy Statement in connection with its Annual Meeting
to be held on May 19, 1999 which is incorporated in this Annual Report on Form
10-K by reference.

         The required information with respect to each executive officer is
contained at the end of Part I of this Annual Report on Form 10-K.


Item 11.  Executive Compensation
--------  ----------------------

         The required information with respect to executive compensation is
contained in the Company's Definitive Proxy Statement in connection with its
Annual Meeting to be held on May 19, 1999, which is incorporated in this Annual
Report on Form 10-K by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management
--------  --------------------------------------------------------------

         The required information with respect to security ownership of certain
beneficial owners and management is contained in the Company's Definitive Proxy
Statement in connection with its Annual Meeting to be held on May 19, 1999,
which is incorporated in this Annual Report on Form 10-K by reference.



                                      -33-

<PAGE>

Item 13.  Certain Relationships and Related Transactions
--------  ----------------------------------------------

         The required information with respect to certain relationships and
related transactions is contained in the Company's Definitive Proxy Statement in
connection with its Annual Meeting to be held on May 19, 1999, which is
incorporated in this Annual Report on Form 10-K by reference.

                                     PART IV
                                     -------

Item 14.  Exhibits, Financial Statement Schedules
-------   and Reports on Form 8-K                     
          ----------------------------------------

Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>

                           Document                                          Page(s)   
                           --------                                          -------   

<S>                                                                           <C>
         Reports of independent auditors.............................         18 - 19

         Consolidated statements of operations for
         the years ended January 31, 1999, 1998 and 1997.............         20

         Consolidated balance sheets as of January 31,
         1999 and 1998...............................................         21

         Consolidated statements of shareholders'
         equity for the years ended January 31, 1999,
         1998 and 1997...............................................         22

         Consolidated statements of cash flows for the
         years ended January 31, 1999, 1998 and 1997.................         23

         Notes to consolidated financial statements..................         24 - 31

         Selected quarterly financial data for
         the years ended January 31, 1999 and 1998...................         32
</TABLE>

         All schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.


                                      -34-


<PAGE>

EXHIBITS
--------

         The following exhibits have been filed with the Securities and Exchange
Commission pursuant to the requirements of the Acts administered by the
Commission. Each such exhibit 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 comprise executive
compensation plans and arrangements.

     Exhibit No.           Description of Document
     -----------           -----------------------

         3-1      Restated Articles of Incorporation of the Company, as amended
                  through May 29, 1984 (1992 Form 10-K, Exhibit 3-1)

         3-2      By-Laws of the Company, as amended through July 19, 1990
                  (1993 Form 10-K, Exhibit 3-2)

         4-1      * Deb Shops, Inc. Restated Savings and Protection Plan
                  (1992 Form 10-K, Exhibit 4-1)

         4-1.1    * Amendment No. I to Deb Shops, Inc. Restated Savings and
                  Protection Plan (1992 Form 10-K, Exhibit 4-1.1)

         4-1.2    * Amendment No. II to Deb Shops, Inc. Restated Savings and
                  Protection Plan (1992 Form 10-K, Exhibit 4-1.2)

         4-1.3    * Amendment No. III to Deb Shops, Inc. Restated Savings and
                  Protection Plan (1992 Form 10-K, Exhibit 4-1.3)

         4-1.4    * Amendment No. IV to Deb Shops, Inc. Restated Savings and
                  Protection Plan (1992 Form 10-K, Exhibit 4-1.4)

         4-1.5    * Amendment No. V to Deb Shops, Inc. Restated Savings and
                  Protection Plan (1994 Form 10-K Exhibit 4-1.5)

         4-1.6    * Amendment No. VI to Deb Shops, Inc. Restated Savings and
                  Protection Plan (1994 Form 10-K, Exhibit 4-1.6)

         4-1.7    * Amendment No. VII to Deb Shops, Inc. Restated Savings and
                  Protection Plan.  (1997 Form 10-K Exhibit 4-1.7)

         4-2      * Employee Savings and Protection Trust Agreement
                  (Registration No. 2-99124, Exhibit 4-5)



                                      -35-
<PAGE>

      Exhibit No.     Description of Document
      -----------     -----------------------

          4-2.1   * Amendment No. I to Employee Savings and Protection Trust
                  Agreement (Form 10-Q for quarter ended July 31, 1992)

         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

         10-10    Acceptance by Deb Shops, Inc. dated June 18, 1982 to guarantee
                  the $500,000 loan to Blue Grass Partnership (Registration No.
                  2-82222, Exhibit 10-10)

         10-14.1  * Insurance Policy for Marvin Rounick and Judy Rounick (1993
                  Form 10-K, Exhibit 10-14.1)

         10-14.2  * 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 (1993 Form 10-K, Exhibit 10-14.2)

         10-14.3  * 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 (1993 Form 10-K,
                  Exhibit 10-14.3)

         10-14.4  * 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, 1998)

         10-14.5  * 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, 1998)

         10-14.6  * 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, 1998)


                                      -36-
<PAGE>

       Exhibit No.  Description of Document
       -----------  -----------------------


         10-15.1   * Life Insurance Policy for Warren Weiner and Penny Weiner
                  (1993 Form 10-K, Exhibit 10-15.1)

         10-15.2  * 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 (1993 Form 10-K, Exhibit 10-15.2)

         10-15.3  * 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 (1993 Form 10-K,
                  Exhibit 10-15.3)

         10-15.4  * 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, 1998)

         10-15.5  * 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, 1998)

         10-15.6  * 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, 1998)






                                      -37-


<PAGE>


       Exhibit No.  Description of Document
       -----------  -----------------------

         10-17    * Restricted Stock Incentive Plan as amended (1995 Form 10-K,
                  Exhibit 10-17)

         10-18    Stock Purchase Agreement dated April 4, 1994 between the
                  Company and Petrie Stores Corporation (1994 Form 10-K, Exhibit
                  10-18)

         10-19    * Deb Shops, Inc. Premium Conversion Plan (1996 Form 10-K,
                  Exhibit 10-19)

         10-19.1  * Amendment No. I to Deb Shops, Inc. Premium Conversion Plan
                  (1997 Form 10-K, Exhibit 10-19.1)

         10-20    * Deb Shops, Inc. 1995 Incentive Stock Option Plan (1997 Form
                  10-K, Exhibit 10-20)

         10-21    * Employment Agreement dated December 1, 1995 between the
                  Company and Allan Laufgraben (1996 Form 10-K, Exhibit 10-21)

         10-21.1  * Employment Agreement dated August 1, 1998 between the
                  Company and Allan Laufgraben

         10-22    * Agreement dated January 31, 1996 between the Company and
                  Barry Vesotsky (1997 Form 10-K, Exhibit 10-22)

         21       Subsidiaries of the Company

         23-1     Consent of Ernst & Young  LLP

         23-2     Consent of Arthur Andersen LLP

         27       Financial Data Schedule

Reports on Form 8-K
-------------------

         There were no reports on Form 8-K for the quarter ended January 31,
1999.




                                      -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 April 29, 1999.

                                           DEB SHOPS, INC.
                                           (Registrant)

                                           By: /s/ Marvin Rounick
                                               ----------------------------
                                               Marvin Rounick, President

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

/s/ Marvin Rounick
-------------------------------------------                   April 29, 1999
Marvin Rounick, President,
  Chief Executive Officer and Director
  (Principal Executive Officer)

/s/ Warren Weiner
-------------------------------------------                   April 29, 1999
Warren Weiner, Executive Vice President,
  Secretary, Treasurer and Director

/s/ Jack A. Rounick
-------------------------------------------                   April 29, 1999
Jack A. Rounick, Assistant Secretary
  and Director

/s/ Paul S. Bachow
-------------------------------------------                   April 29, 1999
Paul S. Bachow, Director

/s/ Barry H. Feinberg
-------------------------------------------                   April 29, 1999
Barry H. Feinberg, Director

/s/ Barry H. Frank
-------------------------------------------                   April 29, 1999
Barry H. Frank, Esq., Director

/s/ Lewis Lyons
-------------------------------------------                   April 29, 1999
Lewis Lyons, Vice President, Finance,
 Chief Financial Officer and Assistant Secretary

/s/ Joan M. Nolan
-------------------------------------------                   April 29, 1999
Joan M. Nolan
Controller



                                      -39-