FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

|X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 (NO FEE REQUIRED)
        For the fiscal year ended January 31, 1997
                                       OR
|_|     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
        For the transition period from ___________ to ___________

                           Commission File No. 0-21869

                                  dELiA*s Inc.
                                  ------------
             (Exact name of registrant as specified in its charter)

           Delaware                                      13-3914035
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

          435 Hudson Street
         New York, New York                                 10014
----------------------------------------                  --------
(Address of principal executive offices)                 (Zip code)

                                 (212) 807-9060
              ----------------------------------------------------
              (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
                     --------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                    Yes X   No
                                       ---    ---

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

Aggregate market value of voting stock held by non-affiliates of registrant as
of April 1, 1997: $86,361,007

Number of shares of Common Stock outstanding as of April 1, 1997:  12,052,500

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report, are incorporated by reference in Part III
hereof.


<PAGE>

       Certain statements contained herein, including, without limitation,
information appearing under Item 1, "Business," and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")).
Forward-looking statements involve a number of risks and uncertainties
including, but not limited to, general economic conditions, changes in fashion
trends, increases in materials, printing, paper, postage, shipping and labor
costs, timing of catalog mailings, customer response rates, international
business risks, levels of competition and other factors outside the control of
the Company. These factors, the factors set forth under Item 1, "Business," and
other factors that appear with the forward-looking statements, or in the
Company's other Securities and Exchange Commission filings, including its
Prospectus dated December 19, 1996, could affect the Company's actual results
and could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company herein.

       All references in this Report to a particular fiscal year refer to the
year ended January 31 following the particular year (e.g., "fiscal 1996" refers
to the fiscal year ended January 31, 1997).


                                     PART I

Item 1. Business.

Overview

       dELiA*s Inc. (with its predecessors, "dELiA*s" or the "Company") is a
direct marketer of casual apparel and related accessories to girls and young
women, primarily between the ages of 10 and 24 (an age group known as
"Generation Y"). The Company believes that it is one of a limited number of
direct marketers distributing an apparel-based catalog exclusively for this
market and that its selection and presentation of merchandise have contributed
to a growing recognition of dELiA*s as a Generation Y fashion resource. The
Company's broad assortment of merchandise includes recognized and emerging
brands complemented by dELiA*s own branded products. Merchandise ranges from
basics, such as jeans, shorts and t-shirts to more fashion-oriented apparel and
accessories, such as woven and knit junior dresses, swimwear, sunglasses,
watches, costume jewelry and cosmetics. The Company's distinctive catalogs, with
their eye-catching layouts accented by creative "catch phrases," are designed to
express a culture and attitude unique to dELiA*s. Each catalog carries a broad
array of merchandise typically presented in coordinated outfits that can be
purchased for under $100.

       dELiA*s distributed its first catalog in March 1994, distributed
approximately 1.7 million catalogs in fiscal 1995 and 8 million catalogs in
fiscal 1996. The Company plans to increase catalog distribution to in excess of
20 million catalogs in fiscal 1997. As of January 31, 1997, the Company's
proprietary database had grown to over 1.3 million house names, including
approximately 370,000 customers who had made at least one purchase from the
Company within the preceding 36 months. The Company's customers are located in
all 50 states, as well as Canada and Japan, with sales to customers in any
single state comprising not more than 10.5% of total sales in fiscal 1996.

       On December 24, 1996, the Company sold 2,052,500 shares of its common
stock, par value $.01 per share ("Common Stock"), in an initial public offering
(the "Offering"). Immediately prior to the Offering, dELiA*s Inc. and dELiA*s
LLC, a predecessor, engaged in a reorganization transaction (the
"Reorganization"), pursuant to which dELiA*s LLC contributed its assets to
dELiA*s Inc. and dELiA*s Inc. assumed, and agreed to pay, perform and discharge,
all liabilities of dELiA*s LLC (except for income tax liabilities).

                                        2

<PAGE>

The Generation Y Market

       With the large "baby boom" generation maturing and having children, the
younger segments of the U.S. population have been increasing in recent years.
According to the U.S. Census Bureau, Generation Y (ages 10 to 24 years)
currently numbers more than 55 million people and is expected to grow by 12% to
approximately 62 million by 2005. These children of the "baby boom" generation
are larger in number and growing more rapidly as a group than the generation
ahead of them.


[Graph titled HISTORICAL AND PROJECTED U.S. POPULATION OF 10 TO 24 YEAR-OLDS
with the following data points:


Years         Population (in
              millions)

1985          56,653
1986          55,586
1987          54,726
1988          54,249
1989          53,683
1990          54,286
1991          54,070
1992          54,253
1993          54,517
1994          54,656
1995          54,865
1996          55,037
1997          55,505
1998          56,248
1999          57,158
2000          58,134
2001          59,170
2002          60,027
2003          60,770
2004          61,358
2005          61,766
2006          62,133
2007          62,403
2008          62,658
2009          62,964
2010          63,147]


       The teen population (ages 12 to 19) represents the core of Generation Y.
The increase in the U.S. teen population has been accompanied by an increase in
the amount of money teens spend. According to one independent consumer research
firm, total teen spending in 1995 was $109 billion, an increase of 10% from
1994.

       The Company believes that the members of Generation Y are influenced by
new media and information sources. Although a variety of retailers and
catalogers offer teen merchandise, the Company believes that a limited number of
national retailers or catalogers cater exclusively to the Generation Y market.
The Company believes that creating a cultural environment that caters to teen
purchasers is essential to effectively marketing to this group. Accessibility is
also important, as many of these purchasers are too young to drive, have working
parents with limited time to take them shopping or do not have convenient access
to teen-focused retailers. As a result, the Company believes that Generation Y
is a large and underserved market that represents a significant direct marketing
opportunity.


Growth Strategy

       The Company's goal is to be the leading marketer of casual fashion
apparel, related accessories and other products to Generation Y girls and young
women and to build on its recognition as a fashion resource. Key elements of the
Company's strategy to accomplish its goal include the following:

       Grow Core Catalog Business. dELiA*s believes that significant
opportunities exist to penetrate further its target market through the increased
use of catalogs. The Company's proprietary database consisted of approximately
1.3 million house names as of January 31, 1997, compared to a total estimated
Generation Y female population of over 25 million. The Company intends to
increase the number of catalogs distributed from 8 million in fiscal 1996 to in
excess of 20 million in fiscal 1997, and to expand the number of editions of its
catalogs. The Company believes it can use its proprietary database to develop
targeted mailings to specific customer segments. It also may broaden the range
of products offered in its catalogs (including additional dELiA*s-branded
products). In addition, the Company recently began to distribute catalogs in
Japan and Canada and plans to increase its distribution of catalogs in these
markets in fiscal 1997. The Company is also exploring distribution opportunities
in other international markets.

                                       3

<PAGE>

       Focus on Brand Name Merchandise. The Company believes teens are very
brand-conscious, and wear branded apparel to project an image to their peers.
The Company monitors leading young women's magazines (including Teen, Seventeen
and YM), television channels (such as MTV) and other trend-setting media to
identify brands and styles that it believes are attracting the attention of the
teen market. A typical dELiA*s catalog features merchandise from a diverse group
of more than 75 vendors. Brands currently offered through dELiA*s catalogs
include nationally recognized names, such as Carter's and Vans, as well as
brands recognized within the teen market, including Free People (Urban
Outfitters) and Roxy (Quiksilver). dELiA*s also strives to obtain merchandise
from emerging designers, a strategy the Company believes differentiates dELiA*s
from other retailers and helps to establish dELiA*s as a fashion resource for
girls and young women. Emerging brands currently featured in dELiA*s catalogs
include Dollhouse, Dawls, Greed Girl, Yak Pak and 26 Red Sugar.

       Develop and Leverage the dELiA*s Brand Identity. The Company believes the
dELiA*s brand stands for fresh, progressive teen style and that the Company has
become a fashion resource for Generation Y girls and young women. The dELiA*s
brand identity is comprised of several components, including up-to-date
merchandise offerings, dELiA*s- branded products, the promotion of emerging
brands and dELiA*s distinctive catalog design. dELiA*s reaches out to its target
audience through its colorful, high-impact catalogs, which are designed to
resemble a youthful fashion digest and to enhance the dELiA*s brand identity.
The Company believes that successfully establishing strong relationships with
its target customers through its catalogs will enable dELiA*s to leverage its
name and database to develop additional distribution channels and complementary
product offerings in the future. These opportunities may include developing a
non-traditional, youth-oriented magazine (or 'zine), developing other
traditional or electronic publishing ventures and opening retail stores.

       Build Proprietary Customer Database. The Company believes the dELiA*s
proprietary customer database, which includes demographic data as well as
purchasing patterns and preferences, would be difficult for competitors to
replicate, primarily because it consists mostly of names of persons who
specifically requested the dELiA*s catalog and which may not be available
through purchased or rented lists. The Company also believes this proprietary
database offers opportunities for cross-marketing, sales of new products and the
development of additional distribution channels. The database of over 1.3
million house names includes approximately 370,000 customers who have made at
least one purchase in the preceding 36 months. During fiscal 1996, over 1
million new names were added to the Company's database. The database has been
developed primarily through referrals, word-of-mouth, returns of catalog request
cards and targeted classified advertising in selected magazines, including
Seventeen and YM. Over 90% of the names in the database have been derived from
these sources. The Company believes that its database yields response rates that
exceed average response rates for the consumer catalog industry.

       Invest in Customer Service Infrastructure. During fiscal 1996, the
Company made significant investments in integrated, state-of-the-art telephone
and management information systems. These systems allow teleservice
representatives to provide real-time product availability and order status
information to customers and to monitor sales patterns and inventory levels
closely. In addition, the Company has expanded its customer service operations,
including an increase in the number of its teleservice representatives from
approximately 50 on February 1, 1996 to approximately 250 on January 31, 1997.
The Company focuses on hiring and training energetic, service-oriented
teleservice representatives who can understand and relate to dELiA*s customers,
with the goals of providing a convenient shopping experience, offering useful
product information and promoting customer loyalty.


Merchandising and Marketing

       dELiA*s offers a carefully edited assortment of recognized and emerging
brands of teen apparel and accessories, complemented by dELiA*s-branded
merchandise. The Company believes teens are very brand-conscious, particularly
in their apparel choices, and rely on their favorite brands to help them project
an image to their peers. The Company monitors leading young women's magazines
(including Teen, Seventeen and YM), television channels (such as MTV) and other
trend-setting media to identify brands and styles that it believes are
attracting the attention of the teen

                                       4

<PAGE>


market. The Company's buyers regularly attend apparel shows and meet with
vendors and, in some cases, the editorial staffs of young women's magazines, to
stay abreast of popular brands, fashions and styles.

       The Company's catalogs feature a broad assortment of merchandise, ranging
from basics, such as jeans, shorts and t-shirts to more fashion-oriented apparel
and accessories, such as woven and knit junior dresses, swimwear, sunglasses,
watches, costume jewelry and cosmetics to enable its customers to fulfill many
of their fashion needs. The Company presents coordinated outfits in its catalogs
that reflect dELiA*s style. Merchandise is presented in a manner designed to
encourage customers to create their own outfits. The Company believes the
presentation of coordinated outfits increases average order size and enhances
sales.

       The following table sets forth the principal product categories offered
by dELiA*s and the percentage of the Company's net sales in fiscal 1996 from its
1996 catalogs represented by each category.


                                               Percentage of Sale
                                               from 1996 Catalogs
                                                  (fiscal 1996) 
       Product Category                        -----------------
       Apparel..................................      74%
       Footwear.................................      14%
       Accessories..............................       8%
       Cosmetics................................       4%
                                                 ----------
                                                     100%


       In the fall of 1995, the Company began to market products under the
dELiA*s brand name. Currently dELiA*s- branded products consist primarily of
cosmetics, t-shirts and footwear. Approximately 17% of the Company's net sales
from its 1996 catalogs was attributable to dELiA*s-branded products.

       The Company seeks to develop strong relationships with numerous vendors
and designers in order to maintain ongoing access to recognized and emerging
brands. A typical dELiA*s catalog features merchandise from a diverse group of
more than 75 vendors. The Company believes the strong customer acceptance of its
catalog helps make the Company a preferred outlet for certain of its vendors,
some of which occasionally provide the Company with merchandise on an exclusive
basis. Brands currently offered through dELiA*s catalogs include nationally
recognized names, such as Carter's and Vans, as well as brands recognized within
the teen market, including Free People (Urban Outfitters) and Roxy (Quiksilver),
dELiA*s also strives to obtain merchandise from emerging designers, a strategy
the Company believes differentiates dELiA*s from other retailers and helps to
establish dELiA*s as a fashion resource for girls and young women. Emerging
brands in the Company's catalog currently include Dollhouse, Dawls, Greed Girl,
Yak Pak and 26 Red Sugar. Apparel produced by Urban Outfitters accounted for
approximately 24% of net sales in fiscal 1996 catalogs (and less than 20% and
10% of net sales from the Winter 1996 and Spring 1997 catalogs, respectively).
No other supplier's products accounted for more than 9% of net sales from fiscal
1996 catalogs. Seven vendors accounted for approximately 51% of the net sales
generated by the Company's fiscal 1996 catalogs. The Company believes that a
limitation on its ability to obtain products from significant suppliers could
have a material adverse effect on the Company. Approximately 30% of the
Company's gross sales derived from its fiscal 1996 catalogs were of products the
Company believes were manufactured outside the United States.


Catalogs

       dELiA*s catalogs are designed to create a distinctive and entertaining
shopping experience and to offer customers more than the typical apparel catalog
by combining the feel and editorial flair of a teen-focused fashion magazine
with the convenience of direct mail shopping. The catalogs are filled with
colorful, eye-catching layouts and creative

                                       5
<PAGE>

"catch phrases." The catalogs feature teen models whose expressions and poses
convey the dELiA*s attitude. For example, on a typical page, coordinated outfits
featuring plaids and stripes appear beside the editorial soundbite,"oPPositeS
AtTract & AbsTrAcT & DeTrAcT & SuBtRaCt & inTeRaCt. oK." Similarly, the headline
on a page featuring dELiA*s neon and metallic-colored makeup reads, "MakIn' uP
Is nOt hARd tO Do."

       dELiA*s catalogs are created and produced in-house by the Company's
designers, with the assistance of free-lance photographers and production
artists. These in-house capabilities allow the Company to control its catalog
production schedule, decreasing the lead times necessary to produce catalogs and
reducing the costs of preparing for printing. These capabilities also provide
the Company with greater flexibility and creativity in catalog production and
merchandise selection.

       In fiscal 1996, the Company published six catalog editions. The Company
anticipates distributing eight catalog editions in fiscal 1997. A typical
catalog, which follows a magazine-type format, contains approximately 50 pages
and 650 SKUs. The Company's four principal seasonal catalogs are mailed to
persons listed in the Company's proprietary database, as well as to persons from
rented lists, and the Company also mails supplemental catalog editions to a more
select group. In addition, the Company arranges for bulk distribution of its
catalogs on college campuses. In fiscal 1996, the Company mailed two sale
circulars. These four-page circulars featured over 200 SKUs. The Company may
from time to time in the future mail additional sale circulars.

       In fiscal 1996, the Company distributed approximately 8 million catalogs
in all 50 states. The Company intends to increase the number of catalogs
distributed to in excess of 20 million in fiscal 1997. The Company believes it
can leverage its proprietary database to develop additional targeted mailings to
specific customer segments, and intends to begin more frequent mailings of
supplemental catalogs to repeat customers.

       The Company began to distribute catalogs in Japan in fiscal 1996 and
intends to increase its distribution of catalogs in Japan in fiscal 1997. These
catalogs are mailed directly to Japanese customers and are also being
distributed through an arrangement with a direct marketing division of Sony
Corporation.


Operations

       The primary components of the Company's operations, as described below,
include its proprietary database, teleservices and order entry, customer service
and returns and distribution and fulfillment.

       Proprietary Database Development. The Company has developed its
proprietary customer database primarily through referrals, word-of-mouth,
returns of catalog request cards and targeted classified advertising in selected
magazines, including Seventeen and YM. The Company believes over 90% of the
names in the database have been derived from these sources, which the Company
believes generate higher response rates than purchased or rented lists. During
fiscal 1996, more than one million new names were added to the Company's
database. As of January 31, 1997, the Company's proprietary database had grown
to over 1.3 million names, including approximately 370,000 customers who had
made at least one purchase from the Company within the preceding 36 months. The
Company's database contains a person's name, gender, residence, age, family
status and historical transaction data (including, among other things, referral
source, history of orders, payment method, average order size and product
purchase information).

       Teleservices and Order Entry. The Company provides its customers with
24-hour, seven-day-a-week, toll-free telephone access. Approximately 75% of the
Company's orders are received by phone and 25% by mail, facsimile and electronic
mail. Teleservice representatives process orders directly into the Company's
management information system, which provides customer order history and
information, product specifications, available substitutes and accessories,
expected ship date and order number. The teleservice representatives are
provided with a sales script, are versed in product sizes, colors and features
and are trained to cross-sell accessories and related products and

                                       6

<PAGE>

provide information about promotional items. Teleservice representatives are
trained to transfer calls to customer service personnel as appropriate.

       The Company believes its customers are particularly sensitive to the way
merchants and salespeople communicate with them. The Company strives to hire
energetic, service-oriented teleservice representatives who can understand and
relate to customers. Teleservice representatives, many of whom are college
students, participate in a training program, which includes a mentor system for
working with more experienced personnel. After training, teleservice
representatives are monitored to review performance and are re-trained
periodically. As teleservice representatives gain experience, they may be
trained and promoted in other areas, such as customer service.

       The Company currently has approximately 150 in-house phone stations and
recently installed a new state-of-the-art telephone system. The Company's
approximately 250 (as of January 31, 1997) full- and part-time teleservice
representatives have the capacity to handle approximately 2,000 calls per hour.
The Company also uses an outside teleservices provider for overflow orders and
orders placed between 3 a.m. and 7 a.m., Eastern Standard Time. The Company
processes telephone orders in an average of two to four minutes, depending upon
the nature of the order and whether the customer is a first-time or repeat
customer.

       Customer Service and Returns. dELiA*s maintains a separate customer
service department. Customer service inquiries are principally concerned with
order and refund status. Customer service representatives are carefully
screened, specially trained and often promoted from within based on level of
product knowledge, service ability and order accuracy. The Company has a 45-day
unconditional return policy for its products. For each of fiscal 1995 and fiscal
1996, customer returns were approximately 17% of gross sales (before exchanges).
Return experience is closely monitored to identify trends in product offerings,
product defects and quality issues.

       Distribution and Fulfillment. A majority of the Company's orders are
shipped within 48 hours of credit approval. In cases in which the order is
placed using another person's credit card and it exceeds a specified threshold,
the order is shipped only after the Company has received oral confirmation from
the cardholder. Customers generally receive orders within three to five business
days after shipping. During fiscal 1996, approximately 95% of all shipments were
made through United Parcel Service or the United States Postal Service. A
shipping and handling fee is charged on each customer order, based on the total
price of the order. The Company's fulfillment systems automatically determine
the most cost effective method of shipping each order.

       dELiA*s currently uses an unaffiliated, third-party fulfillment
contractor to process and fulfill orders. The Company manages this process
through two on-site employees. The third-party contractor uses an integrated
picking, packing and shipping system via an on-line connection to the Company's
in-house server. The system monitors the in-stock status of each item ordered,
processes the order and generates warehouse selection tickets and packing slips
for order fulfillment operations. dELiA*s, through this contractor, is currently
making an average of 3,800 shipments a day. The Company's agreement with the
third-party contractor has a fixed term that expires on April 30, 1997 and
thereafter is terminable by either party at the end of the calendar month
following the giving of 60 days' notice.

       The Company intends to begin performing its own order processing and
fulfillment operations during fiscal 1997. For that purpose, the Company has
entered into a lease agreement for a warehouse and distribution facility in
Hanover, Pennsylvania. See "Item 2--Properties."

       The Company has excess inventory in varying degrees over the course of
the year. Excess inventory is typically greater at the end of the sales life of
the Company's summer catalogs (which typically carry over a substantial number
of SKUs from the spring catalogs) and its winter catalogs (which carry over a
substantial number of SKUs from the fall catalogs). When the Company believes it
has excessive inventory, the Company often runs promotional sales of the excess
items through programs targeted at phone-in customers and through sale
circulars. Products sold through promotional sales to phone-in customers and
through the Company's sales circular are typically discounted by 30%

                                       7
<PAGE>

to 50% from their standard retail prices. The Company also has used third-party
liquidators, tent sales and charitable donations to dispose of excess inventory
and may consider other liquidation options in the future. The Company's net
sales from excess inventory sold at a discount to retail price in fiscal 1996
were approximately $1.6 million, or less than 6% of the Company's net sales for
that period; the cost of those goods sold at a discount to retail price was
approximately $1.1 million. In addition, the Company maintains a reserve against
anticipated losses due to liquidation of additional unsold inventory.


Intellectual Property

       The dELiA*s name and logo have been registered by the Company with the
U.S. Patent and Trademark Office. Other applications for registration of the
Company's trademarks, including the daisy ("*") symbol, are currently pending.
The Company also uses the trademarks, trade names, logos and endorsements of its
suppliers with their permission. The Company is not aware of any pending
conflicts concerning its marks or its use of others' intellectual property
rights.


Competition

       The teen apparel and accessories industries are highly competitive, and
the Company expects competition in these markets to increase. The Company
competes for teen and young adult customers with traditional department store
retailers, alternative and vintage clothing stores located primarily in
metropolitan areas and mall-based teen-focused retailers, such as Gadzooks,
Urban Outfitters and The Wet Seal. To a lesser degree, the Company competes with
other direct marketers, such as Tweeds and J. Crew. Many of the Company's
competitors are larger and have substantially greater financial, distribution
and marketing resources than the Company. The Company believes the principal
competitive factors in its business are merchandise selection, customer service,
brand image and price.

       There are few barriers to entry in the teen apparel and accessories
market and the Company expects other catalogers, as well as additional
store-based retailers and apparel manufacturers, to enter this market. The
Company also could face competition from manufacturers of apparel and
accessories (including the Company's current vendors), who could market their
products directly to retail customers or make their products more readily
available in retail stores or through catalogs. In addition, competitors could
enter into exclusive distribution arrangements with the Company's vendors for
particular products, denying the Company access to such products.

       The Company expects that the direct marketing industry will be affected
by technological changes in distribution and marketing methods, such as on-line
catalogs, retail kiosks and Internet shopping. The Company believes its success
will depend, in part, on its ability to adapt to new technologies and to respond
to competitors' actions in these areas. Adapting to new technologies could
require significant capital expenditures by the Company. There can be no
assurance that the Company will remain competitive in response to technological
changes.


Employees

       As of January 31, 1997, the Company had approximately 277 employees, of
which eight held executive and administrative positions, six were employed in
finance and development, 23 were employed in supervisory sales and customer
service, 12 were employed in product acquisition and planning, approximately 225
were employed in teleservice operations and three were employed in catalog
production. None of the Company's employees is represented by a collective
bargaining unit. The Company considers its relations with its employees to be
good.

                                       8

<PAGE>

Item 2.  Properties.

       The Company leases its New York offices at 435 Hudson Street, New York,
New York, which occupy approximately 30,000 square feet. The lease expires in
2007.

       The Company has entered into a lease agreement for 117,200 square feet of
warehouse and distribution space in Hanover, Pennsylvania. The term of the lease
commences on June 1, 1997 and expires on June 30, 2000. The Company has two
three-year renewal options. See "Item 1--Business-- Operations--Distribution and
Fulfillment."

       The Company's current third-party fulfillment contractor provides
warehouse space near Lancaster, Pennsylvania to the Company for inventory
storage. The Company neither owns nor leases such warehouse space; the cost of
the warehouse space is included in the total fee paid by the Company to the
third-party fulfillment company.

       The Company believes its facilities are well-maintained and in good
operating condition and are adequate for its present level of operations.

Item 3. Legal Proceedings.

       The Company is not involved in any legal proceedings that management
believes would have a material adverse effect on the Company's financial
position or results of operations.


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

       On December 18, 1996, prior to the effectiveness of the registration of
the Common Stock under the Exchange Act, stockholders entitled to vote a
majority of the Company's outstanding voting securities approved the following
matters by written consent: (i) the Company's 1996 Stock Incentive Plan; (ii)
the Company's 1996 Restricted Stock Plan; and (iii) a stock option agreement
between the Company and an executive officer. There were no other matters
submitted to a vote of security holders during the fourth quarter of fiscal
1996.




                                        9

<PAGE>


                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

       The Common Stock is traded on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market System under the
symbol DLIA. On April 22, 1997 there were 50 holders of record of the Common
Stock and approximately 1,625 beneficial owners of the Common Stock.

       The following table sets forth the high and low closing bid prices for
the Company's Common Stock as reported by NASDAQ. Such quotations reflect
interdealer prices without adjustments for retail markups, markdowns, or
commissions and may not necessarily represent actual transactions.


Calendar Period                        High                   Low
---------------                        ----                   ---
Fiscal 1996:
  Fourth Quarter (from
  December 19, 1996)..................  $20                   $12-1/2

       The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its earnings for future growth
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future.

       On December 18, 1996, as part of the Reorganization dELiA*s LLC
subscribed for 10,000,000 shares of Common Stock. The issuance of such shares
was exempt from registration pursuant to Section 4(2) of the Securities Act.

       During fiscal 1996, dELiA*s LLC, a predecessor of dELiA*s Inc., issued
the following unregistered securities:

       1. On February 1, 1996, dELiA*s LLC issued membership interests
equivalent to an aggregate of 605,428 shares of Common Stock to a group of six
employees pursuant to the dELiA*s LLC Restricted Interest Plan and individual
Restricted Interest Agreements dated February 1, 1996. The employees did not
make any payment for their interests.

       2. On February 1, 1996, dELiA*s LLC issued a membership interest
equivalent to 103,591 shares of Common Stock to an investor in consideration for
a non-interest-bearing loan in the amount of $50,000.

       3. On June 1, 1996, dELiA*s LLC issued membership interests equivalent to
an aggregate of 66,856 shares of Common Stock to a group of four employees
pursuant to the dELiA*s LLC Restricted Interest Plan and individual Restricted
Interest Agreements dated June 1, 1996. The employees did not make any payment
for their interests.

      4. On August 1, 1996, dELiA*s LLC issued membership  interests  equivalent
to an aggregate of 32,190  shares of Common Stock to a group of three  employees
pursuant to the dELiA*s LLC Restricted  Interest Plan and individual  Restricted
Interest Agreements dated August 1, 1996. The employees did not make any payment
for their interests.

       Each of the issuances of securities in the transactions described in
paragraphs 1 through 4 above were either exempt from registration pursuant to
Section 4(2) of the Securities Act or did not constitute a "sale" within the
meaning of the Securities Act.


                                       10

<PAGE>

Item 6. Selected Financial Data.

       The selected financial data set forth below have been derived from the
financial statements of the Company set forth elsewhere in this report, which
have been prepared in accordance with generally accepted accounting principles.
This following selected data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto appearing elsewhere in this report.
All financial data has been restated to give effect to the Reorganization.

<TABLE>
<CAPTION>

                                                            Fiscal Year 1994    Fiscal Year 1995    Fiscal Year 1996
                                                                  Ended               Ended              Ended
                                                            January 31, 1995    January 31, 1996    January 31, 1997
                                                            ----------------    ----------------    ----------------
                                                                        (in thousands, except per share data)
<S>                                                             <C>                <C>                  <C>

Statements of Operations Data:
    Net sales..........................................         $  139             $ 5,652              $ 30,225
    Cost of sales......................................             89               3,078                14,624
                                                                ------             -------              --------
    Gross profit.......................................             50               2,574                15,601
    Selling, general and administrative
           expenses....................................            384               2,569                11,850
    Interest income, net...............................              2                  25                   176
                                                                ------            --------              --------
    Income (loss) before provision (benefit) for
           income taxes................................           (332)                 30                 3,927
    Provision (benefit) for income taxes...............             --                   3                  (328)
                                                                -------            -------              --------
     Net Income (loss).................................         $ (332)            $    27              $  4,255 
                                                                =======            =======              ========
     Pro forma net income (loss) (1)...................         $ (202)            $    18              $  2,307
                                                                =======            =======              ========
    Pro forma net income (loss) per
           share (2)...................................         $ (0.02)           $  0.00              $   0.23
                                                                =======            =======              ========
    Shares used in the calculation of pro forma
             net income (loss) per share (2)...........          10,000             10,000                10,214
                                                                =======            =======              ========

Selected Operating Data:
    Number of catalogs distributed............................      115              1,700                 8,000
    House names (3)...........................................       17                290                 1,335
    Buyers (4)................................................        1                 82                   373
</TABLE>


<TABLE>
<CAPTION>
                                                          January 31, 1996   January 31, 1997
                                                          ----------------   ----------------
                                                                     (in thousands)
<S>                                                           <C>              <C>
Balance Sheet Data:
     Cash and cash equivalents..........................      $   675          $ 21,316
     Working capital....................................          720            20,185
     Total assets.......................................        1,266            27,414
     Total stockholders' equity.........................          962            21,132
</TABLE>

---------------------------
(1)  Computed on the basis described in Note 6 of Notes to Financial Statements
     and assuming the pro forma tax provisions described therein. Prior to the
     Offering, the Company effected the Reorganization, in which the Company
     converted from a limited liability company to a C corporation. See "Item 1
     -- Business -- Overview" and Note 6 of Notes to Financial Statements.
(2)  See Note 2 of Notes to Financial Statements for an explanation of the
     determination of shares used in computing pro forma net income per share.
(3)  House names represents the number of customers who have made at least one
     purchase or have requested a catalog from the Company in the preceding 36
     months, determined at the end of the applicable fiscal period.
(4)  Buyers represents the number of customers who have made at least one
     purchase from the Company in the preceding 36 months, determined at the end
     of the applicable fiscal period.


                                       11

<PAGE>


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


Overview

       The Company was founded in 1993 and distributed its first catalog in 1994
through a network of on-campus college representatives. In early 1995, in an
effort to broaden the reach of its catalogs, the Company changed its primary
channel of distribution from college representatives to direct mail. This change
has resulted in a substantial increase in the Company's sales. In order to
support its direct marketing operations, the Company has made significant
capital expenditures for telephone and management information systems and has
hired and maintained an in-house workforce of teleservice representatives.

       The Company initially mailed catalogs to persons responding to
advertisements and to names on rented lists. The Company has built a proprietary
list of "house names" (customers who have made at least one purchase or have
requested a catalog from the Company in the preceding 36 months), which
contained over 1.3 million names as of January 31, 1997, primarily through
referrals, word-of-mouth, returns of catalog request cards and targeted
classified advertising in selected magazines. A significant portion of the
Company's catalogs are mailed to house names, supplemented by purchased and
rented lists. The Company believes that the response rates generated from its
house list are typically higher than can be realized from purchased or rented
lists.

       The Company plans to increase the number of catalogs it distributes from
8 million in fiscal 1996 to in excess of 20 million in fiscal 1997. The Company
distributed four editions of its catalog in fiscal 1995, six editions in fiscal
1996 and anticipates distributing eight editions in fiscal 1997. While the
Company has achieved response rate increases on a year-to-year basis, the
Company has from time to time (including fiscal 1996) experienced decreases in
response rates from catalog to catalog within a fiscal year. Response rates are
influenced by a number of factors including the timing of catalog mailings,
market acceptance of the Company's merchandise and the mix and presentation of
products and actions of competitors. There can be no assurance that the Company
will achieve response rate increases in the future. Average order size has also
fluctuated seasonally. Generally, the average size of orders from the Company's
fall and winter catalogs is larger than the average size of orders from its
spring and summer catalogs.

       The Company is currently attempting to increase the flexibility of its
catalog publishing schedule and reduce the lead time for inventory purchases to
take better advantage of early indicators of customer purchasing patterns and
reduce its exposure to the risk of inventory obsolescence. In the third quarter
of fiscal 1996, the Company began mailing catalogs to selected portions of its
house list that typically respond at higher rates, including its first sale
circular and its first targeted supplemental catalog. In part to facilitate its
targeted publishing strategy, the Company has developed its in-house art
department to allow for shorter and more flexible publishing schedules. In
addition, recently, at the Company's request, certain of the Company's vendors
have agreed to purchase raw materials in advance and in excess of the Company's
initial purchase orders. This allows the Company to place orders later in a
season in response to early indicators of customer demand while reducing the
Company's inventory risk. Although the Company sometimes shares the risk of
these raw material orders with such vendors, these advance purchases limit its
exposure to the greater risk of unsold finished goods. The Company believes
these actions helped to improve its overall profitability in fiscal 1996.

       The Company believes that as its revenue base grows and it further
penetrates its target market, the Company may not be able to sustain the levels
of percentage annual growth in net sales and growth in operating income
experienced in fiscal 1995 and fiscal 1996. Additionally, legislation introduced
in the U.S. Congress that proposes restrictions on persons, principally list
brokers, that sell, purchase or otherwise use for commercial purposes personal
information about teen (under the age of 16) and children could adversely affect
the Company's use of purchased and rented lists, as well as the Company's
ability to generate new names for its proprietary database. Although the Company
is not a list broker, it does mail catalogs to persons whose names are derived
from purchased and rented

                                       12

<PAGE>

lists. Approximately 36% of the names of persons to whom the Company mailed its
Spring 1997 catalog were derived from purchased and rented lists. However, the
Company's use of purchased and rented lists has been declining relative to the
use of its house list. The Company is exploring new methods for developing its
house list and believes it will be able to continue to develop this list through
advertising and new channels for the distribution of its catalogs, including
bulk drops on college  campuses.  There can be no assurance,  however, that the
Company will be able to develop its house list.


Results of Operations

       The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to net
sales. Any trends reflected by the following table may not be indicative of
future results.


<TABLE>
<CAPTION>
                                                                       Percentage of Net Sales
                                                     ------------------------------------------------------------
                                                     Fiscal Year 1994      Fiscal Year 1995      Fiscal Year 1996
                                                          Ended                 Ended                 Ended
                                                     January 31, 1995       January 31, 1996     January 31, 1997
                                                     -----------------     ------------------    -----------------
<S>                                                       <C>                    <C>                   <C>
Net sales........................................          100.0%                100.0%                100.0%
Cost of sales....................................           64.0%                 54.5%                 48.4%
                                                          ------                 -----                 -----
Gross profit.....................................           36.0%                 45.5%                 51.6%
Selling, general and administrative
  expenses.......................................          276.3%                 45.4%                 39.2%
Interest income, net.............................            1.4%                  0.4%                  0.6%

Income (loss) before provision for                                                                    
  income taxes...................................         (238.9%)                 0.5%                 13.0%
Provision (benefit) for income taxes.............            --                    --                   (1.1%)
                                                          ------                 -----                 -----
Net income (loss)................................         (238.9%)                 0.5%                 14.0%
                                                          ======                 =====                 =====
Net income (loss)(1).............................         (145.3%)                 0.3%                  7.6%
----------                                                ======                 =====                 =====
</TABLE>


------------------------
(1) Computed on the basis described in Note 6 of Notes to Financial Statements
     and assuming the pro forma tax provisions described therein. Prior to the
     Offering, the Company effected the Reorganization, in which the Company
     converted from a limited liability company to a C corporation. See "Item
     1--Business--Overview" and Note 1 of Notes to Financial Statements.


Comparison of Fiscal Years 1995 and 1996

       Net sales. Net sales increased approximately $24.6 million, from $5.7
million in fiscal 1995 to $30.2 million in fiscal 1996. The increase in net
sales was primarily due to an increase in the number of catalogs mailed, as well
as an increase in response rates and average order size. The Company increased
the number of catalogs it distributed from 1.7 million in fiscal 1995 to 8
million in fiscal 1996. The increase in average order size resulted from a
combination of factors, including increased prices on certain existing items,
and the addition of certain more expensive items in the Company's catalog.

       Gross margin. Gross margin increased from 45.5% in fiscal 1995 to 51.6%
in fiscal 1996. The increase in gross margin was due to improved sourcing of
merchandise, including larger volume discounts from suppliers, as well as
changes in product mix and higher selling prices. To a lesser degree, gross
margin increased as certain related

                                      13

<PAGE>

fixed costs of merchandising were spread over increased sales. These
improvements were partially offset by an increased reserve for returns
consistent with the Company's recent growth and an increased inventory reserve
for obsolescence based upon management's evaluation of merchandise inventories
as of January 31, 1997 and anticipated inventory dispositions.

       Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $9.3 million, from $2.6 million
in fiscal 1995 to $11.9 million in fiscal 1996. Selling, general and
administrative expenses decreased as a percentage of net sales from 45.4% in
fiscal 1995 to 39.2% in fiscal 1996. The reduction in selling, general and
administrative expenses as a percentage of net sales was due to economies
implemented in catalog production as well as the leveraging of certain fixed
costs over a larger revenue base. The reduction was partially offset by a charge
of approximately $280,000 in fiscal 1996 related to the processing of names of
catalog requesters through a third party service. The Company currently
processes the majority of the names of its catalog requesters in-house and
anticipates doing so in the future. In addition, the reduction was partially
offset by the Company's higher expenditures on corporate salaries and additional
information systems in anticipation of future sales growth.


Comparison of Fiscal Years 1994 and 1995

       Net Sales. Net sales increased approximately $5.6 million, from $139,000
in fiscal 1994 to $5.7 million in fiscal 1995. The increase in net sales was due
primarily to the change in the Company's primary channel of distribution from
on-campus college representatives to direct mail and the corresponding increase
in the number of catalogs distributed. The Company increased catalog
distribution from approximately 115,000 catalogs in fiscal 1994 to approximately
1.7 million catalogs in fiscal 1995.

       Gross Margin. Gross margin increased from 36.0% in fiscal 1994 to 45.5%
in fiscal 1995. The increase in gross margin was due to the leveraging of
certain fixed costs over a larger revenue base, improved sourcing of
merchandise, including sourcing in larger quantities from a broader range of
vendors, as well as a change in merchandise mix to higher margin apparel and
accessories. The increase in gross margin in fiscal 1995 was partially offset by
the Company's decision to liquidate excess inventory through charitable
donations in the fourth quarter of fiscal 1995.

       Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $2.2 million, from $384,000 in
fiscal 1994 to $2.6 million in fiscal 1995. Selling, general and administrative
expenses decreased as a percentage of net sales from 276.3% in fiscal 1994 to
45.4% in fiscal 1995. This reduction in selling, general and administrative
expenses as a percentage of net sales was due primarily to the fact that
revenues increased faster than expenses. The reduction in expenses as a
percentage of net sales was partially offset by a higher corporate payroll and
higher expenditures for management information systems and telephone systems
related to the Company's infrastructure growth.


Seasonality

       The Company is subject to seasonal fluctuations in its merchandise sales
and results of operations. The Company expects its net sales and results of
operations generally to be lower in the first and second quarters than in the
third and fourth quarters of each fiscal year (which include the back-to-school
and holiday seasons). The Company's quarterly results may fluctuate as a result
of numerous factors, including the timing, quantity and cost of catalog
mailings, the timing of sale circulars and liquidations, the timing of
merchandise deliveries, market acceptance of the Company's merchandise
(including new merchandise categories or products introduced), the mix of
products sold, the hiring and training of additional personnel, the timing of
inventory writedowns, the incurrence of other operating costs and factors beyond
the Company's control, such as general economic conditions and actions of
competitors.

                                       14

<PAGE>

Accordingly,  the results of  operations  in any quarter  will not necessarily
be indicative of the results that may be achieved for a full fiscal year or any
future quarter.


Liquidity and Capital Resources

       Since its inception, the Company has met its operating and cash
requirements through funds generated from operations, the private sales of
equity securities and, most recently, the Offering. All of the Company's working
capital needs have been satisfied by cash provided by operations since the third
quarter of fiscal 1995. Cash provided by operations in fiscal 1996 was $5.6
million and $40,000 in fiscal 1995, while cash used in operations was $422,000
in fiscal 1994. This trend was primarily due to lower selling, general and
administrative expenses as a percentage of net sales and higher gross margins.

       Cash used in investing in fiscal 1996 was $940,000 (not including $21.0
million invested in short-term securities), $169,000 in fiscal 1995 and $7,000
in fiscal 1994. The Company expects to make capital expenditures of
approximately $1.5 million to upgrade its management information systems in
fiscal 1997. The Company also anticipates capital expenditures of at least $1.5
million in property, plant and equipment, including leasehold improvements,
office equipment and expenditures relating to the Company's warehouse and
distribution operations.

       Cash and cash equivalents increased by approximately $20.6 million from
January 31, 1996 to January 31, 1997, primarily due to the receipt of the net
proceeds to the Company from the Offering and, to a lesser extent, due to
increased cash generated by operations, but offset by a distribution of $4.0
million to members of dELiA*s LLC prior to the Reorganization.

       During the fiscal year prior to the Offering, the Company operated as a
limited liability company with taxes paid by its members. Following the
Reorganization in which the Company's business was transferred to a Delaware
corporation, the Company ceased to be a flow-through entity and is now liable
for applicable income taxes. See "Item 1--Business--Overview" and Note 6 of
Notes to Financial Statements.

       The Company has a revolving line of credit for seasonal working capital,
collateralized by all of the Company's assets other than inventory. The maximum
amount available under the line of credit is $3.0 million. The interest rate on
the line of credit is the lending bank's prime rate (8.25% at January 31, 1997)
plus 2%. The line expires on July 31, 1997. The Company has not drawn on this
line.

       The Company believes that its cash on hand, together with cash generated
by operations and the net proceeds of the Offering, will be sufficient to meet
its capital and operating requirements through fiscal 1997. The Company's future
capital requirements, however, depend on numerous factors, including, without
limitation, the success of its marketing, sales and distribution efforts. There
can be no assurance that additional funds, if required, will be available to the
Company on favorable terms or at all.


Inflation

       The Company does not believe that inflation has had a material adverse
effect on net sales or results of operations. The Company has generally been
able to pass on increased costs related to inflation through increases in its
prices to customers.

                                       15

<PAGE>

Recent Accounting Pronouncements

       In March 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable, and is effective
for fiscal years beginning after December 15, 1995. The adoption of SFAS No. 121
did not have an effect on the Company's financial position or results of
operations.

       In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for the Company beginning February
1, 1996. SFAS No. 123 requires disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
expense to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply Accounting Principles
Board Opinion ("APB") No. 25, which recognizes compensation costs based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB No. 25 to its stock-based compensation awards to employees. The
required disclosures of pro forma effects on net income and earnings per share
are described in Note 12 of Notes to Financial Statements.

       In February 1997, the FASB issued SFAS No. 128, "Earnings per Share"
("EPS")," which is effective for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 supersedes APB No. 15 and specifies the
computation, presentation and disclosure requirement for basic and diluted EPS.
The Company expects that the adoption of this new standard would not have had a
material effect on EPS for the fiscal year ended January 31, 1997.


Item 8. Financial Statements and Supplementary Data.

       See Item 14 of Part IV of this report.


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

       On August 30, 1996, the Company engaged Deloitte & Touche LLP as its
independent public accountant to audit the Company's financial statements. The
decision to change accountants was approved by the managers of dELiA*s LLC.
Richard A. Eisner & Company, LLP's report on the financial statements for the
Company's two most recent fiscal years did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's two most recent
fiscal years preceding the engagement of Deloitte & Touche LLP, there were no
disagreements with Richard A. Eisner & Company, LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of Richard A. Eisner &
Company, LLP, would have caused it to make a reference to the subject matter of
the disagreement in connection with its report. During the Company's two most
recent fiscal years prior to engaging Deloitte & Touche LLP, the Company did not
consult with Deloitte & Touche LLP regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements.


                                    PART III


       The information required by Part III (Items 10 through 13) is
incorporated by reference to the captions "Beneficial Ownership of Voting
Securities," "Election of Directors," "Management" and "Certain Transactions" in

                                       16


<PAGE>

the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year covered by this report.


                                     PART IV


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

         (a) See Index to Financial Statements on page F-1.

         (b) The Company did not file any  reports on Form 8-K during the fourth
             quarter of fiscal 1996.

         (c) See Exhibit Index immediately following the Notes to Financial
             Statements.





                                       17


<PAGE>




                                  dELiA*s Inc.

                          Index to Financial Statements


Independent Auditors' Reports............................................   F-2

FINANCIAL STATEMENTS:
Balance Sheets as of January 31, 1996 and 1997...........................   F-4

Statements of Operations for the fiscal years ended
   January 31, 1995, 1996  and 1997 ....................................    F-5

Statements of Stockholders' Equity for the fiscal
   years ended January 31, 1995, 1996 and 1997 .........................    F-6

Statements of Cash Flows for the fiscal years ended
    January 31, 1995, 1996  and 1997 ...................................    F-7

Notes to Financial Statements............................................   F-8

                                       F-1

<PAGE>



                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
dELiA*s Inc.
New York, New York

       We have audited the accompanying balance sheet of dELiA*s Inc. (the
"Company") as of January 31, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the fiscal year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

       We conducted our audit in accordance with 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, such financial statements present fairly, in all material
respects, the financial position of the Company at January 31, 1997, and the
results of its operations and its cash flows for the fiscal year then ended in
conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP
March 12, 1997
New York, New York


                                      F-2

<PAGE>




                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders of
dELiA*s Inc.
New York, New York

       We have audited the accompanying balance sheet of dELiA*s Inc. as at
January 31, 1996 and the related statements of operations, stockholders' equity
and cash flows for each of the years in the two years 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 audits 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 audits provide a reasonable basis for our opinion.

       In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of dELiA*s Inc. at January 31,
1996, and results of its operations and its cash flows for each of the years in
the two years then ended in conformity with generally accepted accounting
principles.


Richard A. Eisner & Company, LLP

New York, New York
August 14, 1996

With respect to the
  share issuance in Note 1
December 18, 1996

                                      F-3

<PAGE>


                                  dELiA*s Inc.

                                 BALANCE SHEETS
                        (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                     January 31, 1996       January 31, 1997
                                                                    -----------------       ----------------
<S>                                                                      <C>                 <C>
                                ASSETS
CURRENT ASSETS
      Cash and cash equivalents........................................  $       675         $    21,316
      Receivables from related parties.................................           --                  61
      Merchandise inventories..........................................          221               4,072
      Prepaid expenses and other current assets........................          128                 310
      Deferred taxes...................................................           --                 536
                                                                         -----------         -----------
            Total current assets.......................................        1,024              26,295
                                                                         -----------         -----------
PROPERTY AND EQUIPMENT--Net.............................................         166               1,021
OTHER ASSETS...........................................................           76                  98
                                                                         -----------         -----------
TOTAL ASSETS...........................................................  $     1,266         $    27,414
                                                                         ===========         ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
      Accounts payable.................................................  $        63         $     3,148
      Accrued expenses and other current liabilities...................          137               1,937
      Sales return allowance...........................................           25                 372
      Liabilities due to customers.....................................           76                 618
      Income taxes payable.............................................            3                 193
                                                                         -----------         -----------
            Total current liabilities..................................          304               6,268
                                                                         -----------         -----------
DEFERRED CREDITS.......................................................           --                  14
COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY:
      Preferred Stock, par value $.01 per share;
            Authorized--1,000,000 shares;
            Shares issued and outstanding--none.........................          --                 --
      Common Stock, par value $.01 per share;
            Authorized--50,000,000 shares
            Issued and outstanding--9,191,935 and 12,052,500 shares, at
            January 31, 1996 and 1997, respectively....................           92                 121
      Note receivable from stockholder.................................           --                 (50)
      Deferred compensation............................................           --                (147)
      Additional paid-in capital                                               1,208              20,874
      Retained earnings/(deficit)......................................         (338)                334
                                                                         -----------         -----------
               Total stockholders' equity..............................          962              21,132
                                                                         -----------         -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................  $     1,266         $    27,414
                                                                         ===========         ===========

</TABLE>
                                            See Notes to Financial Statements


<PAGE>

                                                dELiA*s Inc.

                                          STATEMENTS OF OPERATIONS
                                    (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                  Fiscal Year Ended January 31,
                                                                          ----------------------------------------------
                                                                              1995            1996              1997
                                                                          ------------     ------------     ------------
<S>                                                                       <C>              <C>              <C>
NET SALES..............................................................   $        139     $      5,652     $     30,225
COST OF SALES..........................................................             89            3,078           14,624
                                                                          ------------     ------------     ------------
GROSS PROFIT...........................................................             50            2,574           15,601
                                                                          ------------     ------------     ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...........................            384            2,569           11,850
INTEREST INCOME, NET...................................................              2               25              176
                                                                          ------------     ------------     ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES........................           (332)              30            3,927
PROVISION (BENEFIT) FOR INCOME TAXES...................................             --                3             (328)
                                                                          ------------     ------------     ------------
NET INCOME (LOSS)......................................................   $       (332)    $         27     $      4,255
Pro Forma Income Data (Unaudited)                                                                             
  Income (Loss) before provision for income 
      taxes as reported...................... .........................   $       (332)    $         30     $      3,927
  Pro forma provision (benefit) for income taxes.......................           (130)              12            1,620
                                                                          ------------     ------------     ------------
  Pro forma net income (loss)..........................................   $       (202)    $         18     $      2,307
                                                                          ============     ============     ============
  Pro forma net income (loss) per share................................   $      (0.02)    $       0.00     $       0.23
                                                                          ============     ============     ============
  Shares used in the calculation of pro forma net
      income (loss) per share. ........................................         10,000           10,000           10,214
                                                                          ============     ============     ============

</TABLE>
                                        See Notes to Financial Statements


                                                       F-5


<PAGE>




                                  dELiA*s Inc.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                        (in thousands, except share data)



<TABLE>
<CAPTION>
                                                   Common Stock        Note
                                               ------------------   Receivable                  Additional   Retained      Total
                                                Number of             from         Deferred      Paid-In    Earnings/  Stockholders'
                                                 Shares    Amount   Stockholder   Compensation   Capital    (Deficit)     Equity 
                                               ----------  ------   -----------   ------------  ----------  ---------  -------------
<S>                                             <C>        <C>         <C>           <C>         <C>        <C>         <C>     
BALANCE, JANUARY 31, 1994....................   2,821,197  $  28       $   --        $    --     $     172  $   (33)    $    167
Issuance of common stock.....................   5,372,072     54           --             --           946       --        1,000
Net loss.....................................          --     --           --             --            --     (332)        (332)
                                               ----------  -----        -----        -------      --------  --------    --------
BALANCE, JANUARY 31, 1995                       8,193,269     82           --             --         1,118     (365)         835
Issuance of common stock ....................     998,666     10           --             --            90       --          100
Net income ..................................          --     --           --             --            --       27           27
                                               ----------  -----        -----        -------      --------  -------     --------
BALANCE, JANUARY 31, 1996....................   9,191,935     92           --             --         1,208     (338)         962
Issuance of common stock.....................     808,065      8          (50)          (217)          259       --           --
LLC Distribution (Note 1)....................          --     --           --             --         (417)   (3,583)      (4,000)
Net proceeds from issuance of common stock                                                       
     in initial public offering..............   2,052,500     21           --             --        19,824       --       19,845
Deferred compensation expense................          --     --           --             70            --       --           70
Net income...................................          --     --           --             --            --    4,255        4,255
                                               ----------  -----       ------        -------      --------  -------     --------
BALANCE, JANUARY 31, 1997....................  12,052,500  $  21       $  (50)        $ (147)     $ 20,874  $   334     $ 21,132
                                               ==========  =====       ======        =======      ========  =======     ========
</TABLE>







                        See Notes to Financial Statements


                                       F-6
<PAGE>

                                  dELiA*s Inc.

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                              Fiscal Year Ended January 31
                                                                                ----------------------------------------------------
                                                                                     1995                1996               1997
                                                                                -------------       -------------      -------------
<S>                                                                             <C>                 <C>                  <C> 
CASH FLOWS FROM OPERATING
    ACTIVITIES:
        Net income (loss).....................................................  $        (332)      $          27        $    4,255
        Adjustments to reconcile net income (loss) to net cash
            provided by (used in) operating activities
               Depreciation and amortization..................................              1                  14                95
            Inventory reserves for obsolescence...............................              6                  25               562
            Sales return allowance............................................             --                  25               347
            Compensation expense related to issuance of Restricted Stock......             --                  --                70
            Changes in operating assets and liabilities:
               Receivables from related parties...............................             --                  --               (61)
               Merchandise inventories........................................            (80)               (156)           (4,413)
               Prepaid expenses and other current assets......................            (50)                (61)             (182)
               Deferred taxes.................................................             --                  --              (536)
               Other assets...................................................             (2)                (78)              (32)
               Accounts payable...............................................             35                  63             3,085
               Accrued expenses and other current liabilities.................             --                 102             1,800
               Liabilities due to customers...................................             --                  76               542
               Income taxes payable...........................................             --                   3               190
               Deferred credits...............................................             --                  --                14
                                                                                -------------       -------------      ------------
Net cash (used in) provided by operating activities...........................           (422)                 40             5,736
                                                                                -------------       -------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures......................................................             (7)               (169)             (940)
                                                                                -------------       -------------      ------------
Net cash used in investing activities.........................................             --                  --              (940)
                                                                                -------------       -------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from issuance of common stock................................          1,000                 100            19,845
    Payments for dividends....................................................             --                  --            (4,000)
                                                                                -------------       -------------      ------------
Net cash provided by financing activities.....................................          1,000                 100            15,845
                                                                                -------------       -------------      ------------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS................................            571                 (29)           20,641
CASH & CASH EQUIVALENTS-- BEGINNING OF PERIOD.................................            133                 704               675
                                                                                -------------       -------------      ------------
CASH & CASH EQUIVALENTS-- END OF PERIOD.......................................  $         704       $         675      $     21,316
                                                                                =============       =============      ============


SUPPLEMENTARY CASH FLOW INFORMATION:    
    Income taxes paid.........................................................  $          --       $          --      $         15
                                                                                =============       =============      ============
    Interest paid.............................................................  $          --       $          --      $         27
                                                                                =============       =============      ============

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND                                           --                  --                50
FINANCING ACTIVITIES:
    Increase in note receivable from stockholder..............................  $                   $                  $
    Increase in deferred compensation.........................................             --                  --               217
    Increase in common stock..................................................             --                  --                (8)
    Increase in additional paid-in capital....................................             --                  --              (259)
                                                                                -------------       -------------      ------------
                                                                                $          --       $          --      $         --
                                                                                =============       =============      ============
</TABLE>


                        See Notes to Financial Statements



                                       F-7
<PAGE>
                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997

1. Business and Basis of Presentation

       dELiA*s Inc. (the "Company" or "dInc") is a direct marketer of casual
apparel and related accessories to teen girls and young women primarily between
the ages of 10 and 24. The Company offers a broad selection of merchandise,
presented in distinctively styled catalogs; the first catalog was mailed in
March 1994. The Company maintains a corporate headquarters, telemarketing and
customer service group in New York, New York and utilizes a third-party
fulfillment facility for processing merchandise in Lancaster, Pennsylvania.

       The Company is subject to seasonal fluctuations in its merchandise sales
and results of operations. The Company expects its sales operating results
generally to be lower in the first and second quarters than in the third and
fourth quarters (which include the back-to-school and holiday seasons) of each
fiscal year.

       The Company is a successor to a business originally founded in September
1993. In 1995, the successor business began to operate as a New York limited
liability company under the name dELiA*s LLC ("dLLC"). As a limited liability
company, dLLC was treated for income tax purposes as a partnership with taxes on
the income generated by dLLC paid by its members. In October 1996, dInc was
incorporated in Delaware. Prior to the completion of the Company's initial
public offering of Common Stock of dInc (the "Offering"), dLLC and dInc engaged
in a reorganization transaction (the "Reorganization") pursuant to which dLLC
contributed its assets to dInc and dInc assumed, and agreed to pay, perform and
discharge, all liabilities of dLLC (except for income tax liabilities). In
connection with the Reorganization, dInc issued 10,000,000 shares of Common
Stock to dLLC, of which 704,794 shares are restricted under the Company's
Restricted Stock Plan. See Note 11--1996 Restricted Stock Plan. The
Reorganization also resulted in the distribution to existing members of dLLC of
$4,000,000 and the shares of Common Stock of dInc in accordance with the dLLC
operating agreement (the "LLC Distribution"). The accompanying financial
statements and footnotes are presented to reflect the Reorganization as
described above, which was accounted for on a basis similar to a pooling of
interests.


2. Summary of Significant Accounting Policies

       a. Fiscal Year--The Company's fiscal year ends on January 31.

       b. Cash Equivalents--The Company considers all highly liquid investments,
with maturities of 90 days or less when purchased, to be cash equivalents. Cash
equivalents are stated at cost, which approximates market value.

       c. Merchandise Inventories--Merchandise inventories, which are all
finished goods, are stated at the lower of cost (determined on a first-in,
first-out basis) or market value.

       d. Catalog Costs--Catalogs costs, which primarily consist of catalog
production and mailing costs, are capitalized and amortized over the expected
future revenue stream, which is principally from three to five months from the
date catalogs are mailed. The Company accounts for catalog costs in accordance
with the AICPA Statement of Position ("SOP") 93-7, "Reporting on Advertising
Costs." SOP 93-7 requires that the amortization of capitalized advertising costs
should be the amount computed using the ratio that current period revenues for
the catalog cost pool 

                                      F-8

<PAGE>
                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997
 

bear to the total of current and estimated future period revenues for that
catalog cost pool. Deferred catalog costs as of January 31, 1996 and January 31,
1997 were $93,000 and $272,000, respectively. Catalog costs, which are reflected
in selling, general and administrative expenses, for the fiscal years ended
January 31, 1995, 1996 and 1997 were $162,000, $1,104,000 and $4,549,000,
respectively.

       e. Property and Equipment--Property and equipment are stated at cost.
Furniture, fixtures and equipment are depreciated by the straight-line method
over the estimated useful lives of the respective assets, ranging from 5 to 10
years. Leasehold improvements are amortized ratably over the lesser of the
remaining lease term or useful life of the improvement. See Note 3--Property and
Equipment.

       f. Income Taxes--Prior to the Offering, the Company was a limited
liability company ("LLC") and each member's respective portion of dLLC's taxable
income or loss was reportable on such members' own federal and state tax
returns. As an LLC, the Company was subject to income tax in New York State, New
York City and Pennsylvania. As discussed in Note 1, the Company has effected a
Reorganization that changed the income tax status of the Company to a taxable C
corporation. Subsequent to the Reorganization, deferred income tax assets and
liabilities were recorded in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." See Note 6--Income
Taxes.

       g. Deferred Credits--Deferred credits represent deferred rent that
results from the accounting for rent expense on a straight-line basis over the
lease term for leases with scheduled rent increases.

       h. Revenue Recognition--Revenue is recognized when merchandise is shipped
to customers. The Company accrues a sales return allowance in accordance with
its return policy for estimated returns of merchandise subsequent to the balance
sheet date that relate to sales prior to the balance sheet date. At January 31,
1996 and January 31, 1997, sales return allowances were $25,000 and $372,000,
respectively.

       i. Pro Forma Net Income Per Share--Pro forma net income per share is
based on the weighted average number of common shares and common share
equivalents outstanding. The common shares give effect to the issuance of
10,000,000 shares of Common Stock to dLLC as described in Note 1, and 2,052,500
shares in the Offering. The number of common shares and common share equivalents
used in the calculation of pro forma net income per share was 10,000,000 for the
years ended January 31, 1995, and 1996 and 10,214,000 for the year ended January
31, 1997. Common stock issued at prices below the initial public offering price
during the twelve month period preceding the Offering has been included as
outstanding as if the stock were outstanding for all periods presented. The
effect of stock options was not material for the year ended January 31, 1997.

       j. Fair Value of Financial Instruments--The following disclosure about
the fair value of financial instruments is made in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." The carrying amounts reported in the balance sheets for cash and
cash equivalents, receivables and accounts payable approximate fair value 
because of the short-term maturity of those financial instruments.

       k. Use of Estimates in the Preparation of Financial Statements--The
preparation of 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


                                      F-9

<PAGE>
                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997
 

the  financial  statements  and the  reported  amounts of revenues  ane expenses
during the reporting period. Actual results could differ from those estimates.

       l. Recent Accounting Pronouncements--In March 1995, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, and is effective for fiscal years beginning after
December 15, 1995. The adoption of SFAS No. 121 did not have an effect on the
Company's financial position or results of operations.

       In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for the Company beginning February
1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
expense to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply Accounting Principles
Board Opinion ("APB") No. 25, which recognizes compensation costs based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB No. 25 to its stock-based compensation awards to employees. See Note
12--Stock Options for the required disclosure of pro forma effects on net income
and earnings per share.

       In February 1997, the FASB issued SFAS No. 128, "Earnings per Share"
("EPS")," which is effective for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 supersedes APB No. 15 and specifies the
computation, presentation and disclosure requirement for basic and diluted EPS.
The Company expects that the adoption of this new standard would not have had a
material effect on EPS for the fiscal year ended January 31, 1997.


3.         Property and Equipment

      Major classes of property and equipment are as follows:


                                          Estimated    January 31,   January 31,
                                        Useful Lives      1996          1997
                                        ------------  ------------  ------------
Furniture, fixtures and equipment.....   5-10 years     $ 139,000    $  936,000
Leasehold improvements................ Term of lease       37,000       180,000
                                                        ---------    -----------
Total--at cost.........................                   176,000     1,116,000
Less accumulated depreciation and
    amortization.......................                    10,000        95,000
                                                        ---------    ----------
Total property and equipment-- 
    net................................                 $ 166,000    $1,021,000
                                                        =========    ==========

4. Credit and Financing Agreements

       At January 31, 1997, the Company had a line of credit agreement with a
bank providing for short-term loans of up to $3.0 million subject to bank
approval. Borrowings under the agreement are secured by all assets of the

                                      F-10

<PAGE>

                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997
  

Company except for merchandise inventories and bear interest at the prime rate
plus two percent (10.25 percent at January 31, 1997). There were no funds
borrowed under the agreement during the fiscal years ended January 31, 1995,
1996 and 1997.


I. Interest Income--Net

       Interest income--net consists of the following:



                          Fiscal Year 1994   Fiscal Year 1995   Fiscal Year 1996
                                 Ended             Ended             Ended 
                          January 31, 1995    January 31, 1996  January 31, 1997
                         ------------------  -----------------  ----------------
Interest income.........      $  2,000           $  25,000         $ 203,000
Interest expense........            --                  --            27,000
                              --------           ---------         ---------
Interest income--net....      $  2,000           $  25,000         $ 176,000
                              ========           =========         =========

II. Income Taxes

    The provision for income taxes is comprised of the following:

                         Fiscal Year 1994   Fiscal Year 1995   Fiscal Year 1996
                               Ended             Ended             Ended 
                          January 31, 1995    January 31, 1996  January 31, 1997
                         -----------------  ------------------ -----------------
Federal:
   Current................   $        --      $          --      $         --
   Deferred...............            --                 --          (445,000)
                             -----------      -------------      ------------
      Total federal.......            --                 --          (445,000)
                             -----------      -------------      ------------
State and local:                                               
   Current................            --              3,000           208,000
   Deferred...............            --                 --           (91,000)
                             -----------      -------------       -----------
      Total state                                              
         and local........            --              3,000           117,000
                             -----------      -------------       -----------
Total provision                                                
   (benefit)...              $        --      $       3,000       $  (328,000)
                             ===========      =============       ===========

       Effective September 9, 1993 (date of inception), the Company's
predecessor, dELiA*s Ltd., elected S corporation status under applicable
provisions of the Internal Revenue Code. In 1995, dELiA*s Ltd. was succeeded by
dLLC and was treated as a partnership for income tax purposes. As such, dELiA*s
Ltd. and dLLC paid no federal income taxes 

                                      F-11
<PAGE>

                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997


as all taxable income was taxed directly at the shareholder and membership
level. The income tax provision reflects corporate level taxes due to applicable
jurisdictions.

       The effective income tax rates differed from the federal statutory income
tax rates as follows:


<TABLE>
<CAPTION>

                                       Fiscal Year 1994     Fiscal Year 1995   Fiscal Year 1996
                                            Ended                Ended              Ended
                                       January 31, 1995     January 31, 1996   January 31, 1997
                                      -----------------     ----------------   ----------------
<S>                                       <C>                  <C>                 <C>       
Federal taxes at statutory rates......    $(113,000)           $10,000             $1,323,000
State and local taxes
    net of federal benefit............      (20,000)             5,000                272,000
Effect of S Corporation
    and LLC...........................      133,000            (12,000)            (1,923,000)
                                          ---------            -------             ----------
                                          $      --            $ 3,000             $ (328,000)
                                          =========            =======             ==========
</TABLE>

       The tax effect of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities are:


                                           January 31, 1996    January 31, 1997
                                           ----------------    ----------------
Deferred tax assets:
    Inventory reserves..................      $  --               $  184,000
    Sales return allowance..............         --                  153,000
    Deferred compensation expense.......         --                   33,000
    Uniform capitalization
        - inventories...................         --                   65,000
    Net operating loss..................         --                  227,000
                                              --------            ----------
Total deferred tax assets...............         --                  662,000
                                              --------            ----------
Deferred tax liabilities:
    Catalog costs.......................         --                 (111,000)
    Depreciation........................         --                  (15,000)
                                              --------            ----------
Total deferred tax liabilities..........         --                 (126,000)
                                              --------            ----------
Net deferred tax asset..................      $  --                $  536,000
                                              ========            ==========


Pro Forma Provision for Income Taxes (Unaudited)

      The unaudited pro forma  provision for income taxes  represents  estimated
income taxes that would have been reported had the Company filed its tax returns
as a taxable C corporation which reflects the Reorganization described in Note 1
for all periods presented.

                                      F-12

<PAGE>

                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997


      The pro forma provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>

                                Fiscal Year 1994   Fiscal Year 1995     Fiscal Year 1996
                                      Ended              Ended               Ended
                                January 31, 1995    January 31, 1996  January 31, 1997
                                ----------------  ------------------  -------------------
<S>                              <C>                   <C>                <C>
Federal
    Current.................     $     --              $   --             $   1,304,000
    Deferred................         109,000             10,000                (143,000)
                                 -----------           --------           -------------
      Total federal.........        (109,000)            10,000               1,161,000
                                 -----------           --------
State and local:
    Current.................           --                  --                   489,000
    Deferred................         (21,000)              2,000                (30,000)
                                 -----------           ---------         --------------
      Total state and local.        (130,000)             12,000                459,000
                                 -----------           ---------         --------------
    Total provision.........     $  (130,000)          $  12,000         $    1,620,000
                                 ===========           =========         ==============
</TABLE>

7.   Stockholders' Equity

     Effective upon the Reorganization, as described in Note 1, the Company has
authorized 1,000,000 shares of preferred stock, $.01 par value per share, no
shares issued or outstanding; 50,000,000 shares of common stock, $.01 par value
per share, 9,191,935 and 12,052,500 shares issued and outstanding at January 31,
1996, and January 31, 1997, respectively.

     Prior to January 31, 1996, dLLC issued Class A Membership Interests for
capital contributions of $1,300,000, which upon the Reorganization converted
into 9,191,935 shares of Common Stock. During the fiscal year ended January 31,
1997, the Company issued Class C Membership Interests for capital contributions
of $50,000, which upon the Reorganization converted into 103,591 shares of
Common Stock.

     During the fiscal year ended January 31, 1997, Class B restricted
membership interests were granted to certain employees at no cost to these
employees. The cost of restricted membership interests, based upon the
interests' fair market value at the award date in the amount of $217,000, was
credited to stockholders' equity and is being subsequently amortized against
earnings over the vesting period of 30 months. Deferred compensation expense
recognized during the fiscal year ended January 31, 1997 was $70,000. Upon the
Reorganization, the Class B restricted membership interests converted into
704,474 shares of restricted common stock. See Note 11--1996 Restricted Stock
Plan and Note 13-- Family Stockholders' Agreement.


8.   Related Party Transactions

     Receivables from related parties as of January 31, 1997 included (i)
non-interest-bearing loans receivable from two stockholder/executives for an
aggregate of $61,000, related to such certain stockholders' personal income
taxes attributable to income of the Company as a limited liability company and
(ii) a non-interest-bearing loan receivable from a third stockholder/executive
of the Company in the amount of $50,000 related to the executive's capital
contribution.


                                      F-13
<PAGE>
                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997


9.   Commitments

     As of January 31, 1997 the Company was obligated under various long-term
operating leases for office space and equipment requiring minimum annual
rentals. These operating leases expire on varying dates to 2003. At January 31,
1997 aggregate minimum rentals in future periods are as follows:


      Fiscal Year                                                      
        Ending
      January 31,
         1998 ........................................$477,000
         1999 .........................................385,000
         2000 .........................................286,000
         2001 .........................................221,000
         2002 .........................................150,000
      Thereafter .......................................37,000

     In addition, the Company is obligated to pay a proportionate share of
increases in real estate taxes and other occupancy costs.

     Rent expense for the fiscal years ended January 31, 1995, 1996 and 1997 was
$44,000, $88,000 and $128,477, respectively.

     In April 1997, the Company entered into: (i) a three-year lease agreement
for warehouse and distribution space in Hanover, Pennsylvania, providing for
monthly payments amounting to an aggregate of $351,600 per year (the term of the
lease commences in June 1997 and expires in June 2000); and (ii) a lease
agreement for additional space adjacent to its principal offices in New York
City, which lease agreement increases the Company's aggregate annual rental
payments for its principal offices to $269,000, $310,000 and $323,000 for the
periods ending March 31, 1998, April 30, 2003 and March 31, 2007, respectively.
The lease agreement for the Company's principal offices expires in 2007.

     The Company has an agreement (the "Fulfillment Agreement") with a
third-party fulfillment contractor to provide warehouse space near Lancaster,
Pennsylvania for inventory storage and processing, including the fulfillment of
customer orders for merchandise. The Company neither owns nor leases such
warehouse space; the cost of the warehouse space is included in the fees paid by
the Company to the third-party fulfillment contractor under the terms of the
Fulfillment Agreement. The Fulfillment Agreement has a fixed term that expires
on April 30, 1997 and thereafter is terminable by either party at the end of the
calendar month following the giving of 60 days' notice. At January 31, 1997,
aggregate minimum payments in future periods under the Fulfillment Agreement are
as follows: $86,000 for fiscal year ending January 31, 1998.


10.  Employment Agreements

     Prior to the Offering, two executives of the Company entered into
three-year agreements with the Company providing for the continuation of their
employment at minimum salaries of $100,000 a year for each executive, subject to
annual


                                      F-14
<PAGE>
                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997


upward adjustment in proportion to the increase in the consumer price index plus
such increases in salary and bonuses as approved by the Board of Directors.

     In July 1996, an executive of the Company entered into an agreement with
the Company providing for the continuation of his employment at a minimum salary
each year of $100,000 plus such increases in salary and bonuses as approved by
the Board of Directors. The agreement terminates in July 2001.


11.  1996 Restricted Stock Plan

     Concurrent with the Reorganization, the Company approved and adopted the
1996 Restricted Stock Plan (the "Restricted Stock Plan") pursuant to which
704,794 shares of Common Stock were exchanged for restricted membership
interests in dLLC held by certain employees of the Company ("Restricted Interest
Holders"). Upon the issuance of such shares, no more shares were available for
issuance pursuant to the Restricted Stock Plan.

     Under the provisions of the restricted stock agreements between each
Restricted Interest Holder and the Company, the restrictions on the shares
generally lapse 30 months from the grant date of the original restricted
membership interest in dLLC. If a Restricted Interest Holder's employment is
terminated prior to the 30th month for any reason, the Restricted Interest
Holder will forfeit all rights to the restricted stock. Within the limits of the
Restricted Stock Plan, the compensation committee may provide for the lapse of
such restrictions in installments in whole or in part or may accelerate or waive
such restrictions at any time.

     In addition, the restricted stock agreements give an executive
officer/stockholder of the Company the right to vote all the shares of common
stock issued to the Restricted Interest Holders pursuant to such agreements on
all matters during the period in which such shares are subject to restrictions
on transfer.


12.  Stock Options

     An executive is party to a stock option agreement with the Company pursuant
to which the Company granted such executive an option to purchase up to an
aggregate of 250,000 shares of Common Stock at the price per share to the public
in the Offering (the "Exercise Price"). The option becomes exercisable as to
50,000 shares on each of July 21, 1997, 1998, 1999, 2000 and 2001. If the
executive's employment terminates before July 21, 2001 as a result of his death
or disability, or if the Company terminates his employment other than for cause
or if the Company effects a Constructive Discharge (as defined in the
executive's employment agreement) of the executive, the option will become
exercisable as to all 250,000 shares; if the executive's employment terminates
other than as set forth above, the portion of the option that is not then
exercisable terminates. During the 30-day period beginning on the fourth
anniversary of the termination of the executive's employment for any reason, the
Company may purchase all the shares previously purchased by the executive
pursuant to the option and terminate all further rights under the option in
exchange for an amount determined pursuant to the stock option agreement. Upon a
merger, consolidation or sale of substantially all the assets of the Company,
the option will become immediately exercisable as to 50% of the shares as to
which the option has not yet become exercisable, with the balance of the option
not then exercisable becoming exercisable in equal amounts on each July 21
thereafter through July 21, 2001. If the executive's employment terminates
before July 22, 1997, a


                                      F-15
<PAGE>
                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997


stockholder/executive of the Company will have the option to purchase from the
executive 100,000 shares of Common Stock for $50,000.

     Concurrent with the Reorganization, the Company approved and adopted the
1996 Stock Incentive Plan (the "Incentive Plan"), which provides for the
following types of awards of eligible employees: (i) stock options, including
incentive stock options and non-qualified stock options; (ii) stock appreciation
rights, in tandem with stock options or freestanding; and (iii) restricted
stock. Awards may be granted singly, in combination or in tandem, as determined
by a committee of the Company's board of directors.

     The maximum number of shares of Common Stock that may be issued pursuant to
the Incentive Plan is 1,250,000. The maximum number of shares of Common Stock
subject to each of stock options or stock appreciation rights that may be
granted to any individual under the Incentive Plan is 100,000 for each fiscal
year of the Company during the term of the Incentive Plan. If a stock
appreciation right is granted in tandem with a stock option, it shall apply
against the individual limits for both stock options and stock appreciation
rights, but only once against the maximum number of shares available under the
Incentive Plan.

     Under the Incentive Plan, two independent non-employee directors were
granted, at the time of the Offering, an option to purchase 40,000 shares each
of Common Stock at an exercise price per share equal to the Offering price. All
options granted to non-employee directors will become exercisable at the rate of
20% on each of the first five anniversaries of the date of grant, assuming the
non-employee director is a director on those dates, and all such options
generally will cease to be exercisable ten years from the date of grant. Upon a
Change of Control (as defined in the Incentive Plan), all options (which have
not yet expired) will automatically become exercisable.

     In addition, options to purchase an aggregate of 53,750 shares of Common
Stock were granted to sixteen employees of the Company at the time of the
Offering. These options granted to employees will become exercisable over a
period of one to three years after the date of the Offering and expire after 10
years. The exercise price per share of the options that were granted at the time
of the Offering is equal to the initial public offering price.

     A summary of the status of the options to purchase shares of Common Stock
outstanding as of January 31, 1997 follows:


                                                                     Weighted
                                                      Options     Exercise Price
                                                      -------     --------------
Outstanding at beginning of year ................          --         $   --
     Granted                                          383,750          11.00
     Exercised                                             --             --
     Canceled                                              --             --
                                                      -------         ------
Outstanding at end of year ......................     383,750         $11.00
                                                      =======         ======
Options exercisable at end of year ..............          --         $11.00
                                                      =======         ======


     The Company applies APB No. 25 and related interpretations in accounting
for its stock option and purchase plans. Accordingly, no compensation expense
has been recognized for those plans in the year ended January 31, 1997. Had
compensation expense been determined based on the fair value of stock option
grants on the date of grant consistent with

                                      F-16
<PAGE>
                                  dELiA*s Inc.

                          NOTES TO FINANCIAL STATEMENTS

               Fiscal Years Ended January 31, 1995, 1996 and 1997


SFAS No. 123, the effect on the Company's net income and earnings per share for
the year ended January 31, 1997 would not have been material.

     The estimated fair market value of options granted during the year ended
January 31, 1997 was $4.08 per share. The fair value of options granted by the
Company during the year ended January 31, 1997 was estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividend yield; expected volatility (based on comparable
stocks) of 45 percent; risk-free interest rate of 6.4 percent; expected lives of
three to five years.


13.  Family Stockholders' Agreement

     Concurrent with the Reorganization, certain stockholders (the "Family
Holders") and a stockholder/executive of the Company (the "Executive") entered
into a stockholders agreement with the Company (the "Family Stockholders
Agreement") which, subject to certain exceptions, prohibits the Family Holders
from transferring the shares of Common Stock they owned upon completion of the
Reorganization for a period of two years from the date of the Reorganization.
Thereafter, the Family Holders will be able to transfer such shares in
accordance with the requirements of Rule 144 under the Securities Act. The
Family Stockholders Agreement also permits each of the Family Holders to cause
the Company to register shares of Common Stock concurrently with offerings of
Common Stock by the Executive. The Company will generally be required to bear
the expenses of all such registrations, except underwriting discounts and
commissions. In addition, the Family Stockholders Agreement gives the Executive
the right to vote all of the shares of Common Stock owned by the Family Holders
on all matters that come before the stockholders of the Company. The Family
Holders collectively, owned 32.5 percent of the outstanding Common Stock upon
completion of the Offering. The Family Stockholders Agreement will expire on the
tenth anniversary of the completion of the Reorganization.

                                      F-17
<PAGE>

                                   SIGNATURES
                                   ----------

     Pursuant to the requirements of Section 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.

                                       dELiA*s Inc.



                                       By:  /s/ Stephen I. Kahn
                                            -------------------
                                            Stephen I. Kahn
                                            Chairman of the Board, President and
                                            Chief Executive Officer

Date:  April 25,  1997

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


  /s/ Stephen I. Kahn         Chairman of the Board, President,   April 25, 1997
  -------------------------   Chief Executive Officer 
    Stephen I. Kahn           and Director (principal 
                              executive officer)      
                              
                              
  /s/ Evan Guillemin          Chief Financial Officer and         April 25, 1997
  -------------------------   Treasurer (principal financial 
    Evan Guillemin            and accounting officer)        
                              

  /s/ Christopher C. Edgar    Executive Vice President, Chief     April 25, 1997
  -------------------------   
    Christopher C. Edgar      Operating Officer and Director
                              
                              
  /s/ S. Roger Horchow        Director                            April 25, 1997
  -------------------------   
    S. Roger Horchow          
                              
                              
  /s/ Sidney S. Kahn          Director                            April 25, 1997
  -------------------------   
    Sidney S. Kahn            
                              
                              
  /s/ Geraldine Karetsky      Director                            April 25, 1997
  -------------------------   
    Geraldine Karetsky        
                              
                              
  /s/ Joseph J. Pinto         Director                            April 25, 1997
  -------------------------   
    Joseph J. Pinto        


<PAGE>

                                  EXHIBIT INDEX


2.1    Bill of Sale and Contribution and Assumption Agreement between dELiA*s
       LLC and the Company (incorporated by reference to Exhibit 2.1 to the
       Company's Registration Statement on Form S-1 (Registration No.
       333-15153))

3.1    Certificate of incorporation of the Company (incorporated by reference to
       Exhibit 3.1 to the Company's Registration Statement on Form S-1
       (Registration No. 333-15153))

3.2    Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
       Company's Registration Statement on Form S-1 (Registration No.
       333-15153))

10.1   Form of Employment Agreement between the Company and Stephen I. Kahn
       (incorporated by reference to Exhibit 10.1 to the Company's Registration
       Statement on Form S-1 (Registration No. 333-15153))

10.2   Employment Agreement between the Company and Christopher C. Edgar
       (incorporated by reference to Exhibit 10.2 to the Company's Registration
       Statement on Form S-1 (Registration No. 333- 15153))

10.3   Employment Agreement between the Company and Evan Guillemin (incorporated
       by reference to Exhibit 10.3 to the Company's Registration Statement on
       Form S-1 (Registration No. 333-15153))

10.4   Form of Family Stockholders Agreement among the Company, Stephen I. Kahn
       and the persons listed on exhibit A thereto (incorporated by reference to
       Exhibit 10.4 to the Company's Registration Statement on Form S-1
       (Registration No. 333-15153))

10.5   1996 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to
       the Company's Registration Statement on Form S-1 (Registration No.
       333-15153))

10.6   Restricted Stock Plan (incorporated by reference to Exhibit 10.6 to the
       Company's Registration Statement on Form S-1 (Registration No.
       333-15153))

10.7   Stock Option Agreement between the Company and Evan Guillemin
       (incorporated by reference to Exhibit 10.7 to the Company's Registration
       Statement on Form S-1 (Registration No. 333-15153))

10.8   Agreement dated April 11, 1996 between the Company and The Jay Group,
       Inc. (the "Jay Group Agreement") (incorporated by reference to Exhibit
       10.8 to the Company's Registration Statement on Form S-1 (Registration
       No. 333-15153))

10.9   Lease Agreement dated May 3, 1995 between the Company and The Rector,
       Church-Wardens and Vestrymen of Trinity Church in the City of New-York
       (the "Lease Agreement"); Modification and Extension of Lease Agreement
       dated September 26, 1996 (incorporated by reference to Exhibit 10.9 to
       the Company's Registration Statement on Form S-1 (Registration No.
       333-15153))

10.10  Form of Restricted Stock Agreements between the Company and holders of
       Common Stock subject to the Restricted Stock Plan (incorporated by
       reference to Exhibit 10.10 to the Company's Registration Statement on
       Form S-1 (Registration No. 333-15153))



<PAGE>


10.11* Amendment dated March 31, 1996 to the Jay Group Agreement

10.12* Lease Agreement dated April 11, 1997 between the Company and Keystone
       Distribution Center, Inc.

10.13* Agreement, dated April 4, 1997 between the Company and The Rector, Church
       Wardens and Vestrymen of Trinity Church in the City of New York amending
       the Lease Agreement

16     Letter from Richard A. Eisner & Company, LLP respecting change in
       certifying accountant (incorporated by reference to Exhibit 16 to the
       Company's Registration Statement on Form S-1 (Registration No.
       333-15153))

23.1*  Consent of Deloitte & Touche LLP*

23.2*    Consent of Richard A. Eisner & Company LLP

27*      Financial Data Schedule*


*Filed herewith