ITURF INC
10-Q, 2000-09-12
CATALOG & MAIL-ORDER HOUSES
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<PAGE>

     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 2000


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


[X]                              QUARTERLY REPORT

                            -------------------------

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                  FOR THE QUARTERLY PERIOD ENDED JULY 29, 2000



                         Commission file number 0-25347

                                   ITURF INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                  13-3963754
    (STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)

                ONE BATTERY PARK PLAZA, NEW YORK, NEW YORK 10004
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                   (ZIP CODE)

                                 (212) 742-1640
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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 |_|

        Number of shares of Class A Common Stock outstanding as of
        September 1, 2000: 9,697,090

        Number of shares of Class B Common Stock outstanding as of
        September 1, 2000: 11,425,000
<PAGE>

     STATEMENTS CONTAINED IN THIS DOCUMENT, INCLUDING, WITHOUT LIMITATION,
INFORMATION APPEARING UNDER "PART I - ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," MAY BE
FORWARD-LOOKING STATEMENTS (WITHIN THE MEANING OF SECTION 27A OF THE AMENDED
SECURITIES ACT OF 1933 AND SECTION 21E OF THE AMENDED SECURITIES EXCHANGE ACT
OF 1934). WHEN USED IN THIS DOCUMENT, THE WORDS "BELIEVE," "PLAN," "INTEND,"
"EXPECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS REPORT.
THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN THE
FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT
LIMITED TO, THE CONDITION OF THE FINANCIAL MARKETS GENERALLY; THE RISK THAT
DELIA*S AND ITURF'S BUSINESSES WILL NOT BE INTEGRATED SUCCESSFULLY; COSTS
RELATED TO THE MERGER; THE RISK THAT DELIA*S OR ITURF STOCKHOLDERS WILL FAIL
TO APPROVE THE MERGER OR THAT LITIGATION WILL DELAY OR PREVENT THE
TRANSACTION'S CONSUMMATION; THE ABILITY OF DELIA*S TO DIVEST NON-CORE ASSETS
ON SATISFACTORY TERMS OR AT ALL; ACCESS TO FINANCING TO FUND OPERATIONS AND
THE EXPANSION STRATEGIES OF EACH BUSINESS; INCREASES IN THE COST OF
MATERIALS, PRINTING, PAPER, POSTAGE, SHIPPING AND LABOR; TIMING AND QUANTITY
OF CATALOG AND ELECTRONIC MAILINGS; DECREASES IN THE RATE OF RESPONSE TO
CATALOG AND ELECTRONIC MAILINGS; EACH COMPANY'S ABILITY TO LEVERAGE
INVESTMENTS MADE IN INFRASTRUCTURE TO SUPPORT EXPANSION; ACCEPTANCE OF NEW
RETAIL CONCEPTS; AVAILABILITY OF ACCEPTABLE STORE SITES AND LEASE TERMS;
ABILITY TO OPEN NEW STORES; POSSIBILITY OF INCREASING COMPARABLE STORE SALES;
ADVERSE WEATHER CONDITIONS AND OTHER FACTORS AFFECTING RETAIL; LEVELS OF
COMPETITION; ITURF'S ABILITY TO SELL ADVERTISING; CHANGES IN THE GROWTH RATE
OF INTERNET USAGE AND ONLINE USER TRAFFIC LEVELS; LEVELS OF DEMAND FOR
INTERNET ADVERTISING; THE ABILITY TO RETAIN KEY PERSONNEL; THE ABILITY OF
COMPUTER SYSTEMS TO SCALE WITH GROWTH IN ONLINE TRAFFIC; DIFFICULTIES IN
INTEGRATING ACQUISITIONS OF NEW BUSINESSES AND TECHNOLOGY; GENERAL ECONOMIC
CONDITIONS; AND OTHER FACTORS AFFECTING RETAIL SALES; DELIA*S ABILITY TO
ANTICIPATE AND RESPOND TO FASHION TRENDS; EACH COMPANY'S DEPENDENCE ON THIRD
PARTIES; AND OTHER FACTORS OUTSIDE OUR CONTROL. THESE FACTORS, AND OTHER
FACTORS THAT APPEAR IN THIS REPORT OR IN OUR OTHER SECURITIES AND EXCHANGE
COMMISSION FILINGS, INCLUDING OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED JANUARY 29, 2000 AND OUR MOST RECENT PROXY/REGISTRATION STATEMENT ON
FORM S-4, COULD AFFECT OUR ACTUAL RESULTS AND COULD CAUSE OUR ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS
MADE BY US OR ON OUR BEHALF.

     THIS REPORT INCLUDES MARKET DATA RELATED TO THE INDUSTRIES IN WHICH WE ARE
INVOLVED. THIS DATA HAS BEEN DERIVED FROM STUDIES PUBLISHED BY MARKET RESEARCH
FIRMS, TRADE ASSOCIATIONS AND OTHER ORGANIZATIONS. THESE ORGANIZATIONS SOMETIMES
ASSUME EVENTS, TRENDS AND ACTIVITIES WILL OCCUR AND PROJECT INFORMATION BASED ON
THOSE ASSUMPTIONS. IF ANY OF THEIR ASSUMPTIONS ARE WRONG, THEIR PROJECTIONS MAY
ALSO BE WRONG.

     WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
YOU ARE ADVISED, HOWEVER, TO CONSULT ANY ADDITIONAL DISCLOSURES WE MAKE IN OUR
REPORTS TO THE SEC ON FORMS 10-K, 10-Q, 8-K AND S-4.

     ANY REFERENCE IN THIS REPORT TO A PARTICULAR FISCAL YEAR IS TO THE YEAR
ENDED ON THE SATURDAY CLOSEST TO JANUARY 31 FOLLOWING THE CORRESPONDING CALENDAR
YEAR. FOR EXAMPLE, "FISCAL 1999" MEANS THE PERIOD FROM FEBRUARY 1, 1999 TO
JANUARY 29, 2000.
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

      ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                   ITURF INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 JANUARY 29, 2000   JULY 29, 2000
                                                                                 ----------------   -------------
                                                                                                     (UNAUDITED)
<S>                                                                                 <C>              <C>
                                     ASSETS
    CURRENT ASSETS
     Cash and cash equivalents..................................................    $  19,009        $  11,324
     Short-term investments.....................................................       32,893           25,274
     Prepaid expenses - dELiA*s ................................................        1,118            8,615
     Other current assets.......................................................        3,569            4,589
                                                                                    ---------        ---------
         Total current assets...................................................       56,589           49,802

    INVESTMENTS.................................................................       11,024            2,002
    PROPERTY AND EQUIPMENT, net of accumulated depreciation
     of $518 and $1,004 at January 29, 2000 and July 29, 2000, respectively.....        3,286            3,782
    INTANGIBLE ASSETS, NET......................................................       17,703           28,558
    OTHER ASSETS................................................................          206              277
                                                                                    ---------        ---------
    TOTAL ASSETS................................................................    $  88,808        $  84,421
                                                                                    =========        =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

    LIABILITIES
     Accounts payable and other current liabilities.............................    $   3,856        $   4,126

    STOCKHOLDERS' EQUITY
     Preferred stock, $.01 par value, 1,000,000 shares authorized;
          no shares issued or outstanding.......................................           --               --
     Class A common stock, $.01 par value, 67,500,000 shares authorized;
          7,493,132 and 9,697,090 shares issued and outstanding at
          January 29, 2000 and July 29, 2000, respectively......................           75               97
     Class B common stock, $.01 par value, 12,500,000 shares authorized;
          11,425,000 issued and outstanding.....................................          114              114
     Additional paid-in capital.................................................      116,388          133,791
      Deferred compensation.....................................................           --           (2,440)
     Investment in common stock of dELiA*s Inc..................................      (17,734)         (17,734)
     Accumulated deficit........................................................      (13,891)         (33,533)
                                                                                    ---------        ---------
         Total stockholders' equity.............................................       84,952           80,295
                                                                                    ---------        ---------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................    $  88,808        $  84,421
                                                                                    =========        =========
</TABLE>

       See Notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>

                                   ITURF INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                        THIRTEEN WEEKS ENDED
                                                   JULY 31, 1999     JULY 29, 2000
                                                   -------------     -------------
                                                             (UNAUDITED)
<S>                                                    <C>             <C>
REVENUES:
    NET PRODUCT SALES                                  $  2,600        $  6,408
    ADVERTISING AND OTHER                                   352           1,255
                                                       --------        --------
TOTAL NET REVENUES                                        2,952           7,663
COST OF PRODUCT SALES                                     1,651           3,881
                                                       --------        --------

GROSS PROFIT                                              1,301           3,782

OPERATING EXPENSES:
    SELLING AND MARKETING                                 2,484           8,187
    TECHNOLOGY AND CONTENT DEVELOPMENT                    1,040           3,579
    GENERAL AND ADMINISTRATIVE                              509           1,399
    GOODWILL AMORTIZATION                                    19           1,673
                                                       --------        --------
TOTAL OPERATING EXPENSES                                  4,052          14,838

INTEREST INCOME, NET                                       (989)           (636)
                                                       --------        --------

LOSS BEFORE INCOME TAXES                                 (1,762)        (10,420)
BENEFIT FOR INCOME TAXES                                   --              --
                                                       --------        --------

NET LOSS                                               $ (1,762)       $(10,420)
BASIC AND DILUTED NET LOSS PER SHARE                   $  (0.10)       $  (0.52)
                                                       ========        ========
SHARES USED IN THE CALCULATION OF BASIC AND DILUTED
 NET LOSS PER SHARE                                      17,331          20,024
                                                       ========        ========

<CAPTION>
                                                        TWENTY-SIX WEEKS ENDED
                                                   JULY 31, 1999     JULY 29, 2000
                                                   -------------     -------------
                                                             (UNAUDITED)
<S>                                                    <C>             <C>
REVENUES:
    NET PRODUCT SALES                                  $  5,025        $ 16,396
    ADVERTISING AND OTHER                                   542           2,262
                                                       --------        --------
TOTAL NET REVENUES                                        5,567          18,658
COST OF PRODUCT SALES                                     2,983           9,345
                                                       --------        --------

GROSS PROFIT                                              2,584           9,313

OPERATING EXPENSES:
    SELLING AND MARKETING                                 3,481          17,314
    TECHNOLOGY AND CONTENT DEVELOPMENT                    1,489           6,765
    GENERAL AND ADMINISTRATIVE                              797           3,049
    GOODWILL AMORTIZATION                                    38           3,228
                                                       --------        --------
TOTAL OPERATING EXPENSES                                  5,805          30,356

INTEREST INCOME, NET                                     (1,101)         (1,401)
                                                       --------        --------

LOSS BEFORE INCOME TAXES                                 (2,120)        (19,642)
BENEFIT FOR INCOME TAXES                                   (161)           --
                                                       --------        --------

NET LOSS                                               $ (1,959)       $(19,642)
BASIC AND DILUTED NET LOSS PER SHARE                   $  (0.13)       $  (0.99)
                                                       ========        ========
SHARES USED IN THE CALCULATION OF BASIC AND DILUTED
 NET LOSS PER SHARE                                      15,372          19,921
                                                       ========        ========
</TABLE>

       See Notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>

                                   ITURF INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               TWENTY-SIX WEEKS ENDED
                                                                            JULY 31, 1999  JULY 29, 2000
                                                                            -------------  -------------
                                                                                     (UNAUDITED)
<S>                                                                            <C>           <C>
OPERATING ACTIVITIES:
 Net loss                                                                      $ (1,959)     $(19,642)
 Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                  130         3,732
     Amortization of premiums and discounts on investments, net                    (139)         (321)
     Noncash compensation expense                                                  --             700
     Changes in operating assets and liabilities:
          Prepaid expenses - dELiA*s                                               --          (7,497)
          Other current assets                                                   (1,840)         (724)
          Other assets                                                             --             (69)
          Current liabilities                                                       714           (68)
                                                                               --------      --------
 Net cash used in operating activities                                           (3,094)      (23,889)
                                                                               ========      ========

INVESTING ACTIVITIES:
 Purchase of dELiA*s stock                                                      (17,734)         --
 Acquisitions                                                                      --             174
 Purchase of held-to-maturity investment securities                             (55,378)      (17,876)
 Proceeds from the maturity of investment securities                               --          34,838
 Capital expenditures                                                            (1,555)         (986)
                                                                               --------      --------
Net cash (used in) provided by investing activities                             (74,667)       16,150
                                                                               ========      ========

FINANCING ACTIVITIES:
 Net proceeds from issuance of common stock                                      97,749          --
 Exercise of common stock options                                                  --              54
 Loan from dELiA*s                                                                2,059          --
                                                                               --------      --------
Net cash provided by financing activities                                        99,808            54
                                                                               ========      ========

INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS                                   22,047        (7,685)

CASH & CASH EQUIVALENTS--BEGINNING OF PERIOD                                        375        19,009
                                                                               --------      --------
CASH & CASH EQUIVALENTS--END OF PERIOD                                         $ 22,422      $ 11,324
                                                                               ========      ========
</TABLE>

    Supplemental disclosure of noncash financing and investing activities:
    April 1999 issuance of common stock for the acquisition of tsisoccer.com
    domain name. May 2000 issuance of restricted stock. See Note 6.

    February 2000 issuance of common stock for the acquisition of
    theSpark.com, Inc. See Note 3.

       See Notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>

                                   ITURF INC.

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       BUSINESS

         iTurf Inc. operates a network of community and commerce Web sites that
    is focused primarily on teens and young adults. iTurf was incorporated in
    August 1997 and is a subsidiary of dELiA*s Inc. We utilize dELiA*s business
    relationships, infrastructure and brand names and relied on dELiA*s to
    provide financing for our operations until April 14, 1999, when we completed
    an initial public offering of our Class A common stock. At July 29, 2000,
    dELiA*s owns approximately 54% of our outstanding common stock and controls
    approximately 88% of the voting power of our outstanding common stock.

         On April 1, 1999, our certificate of incorporation was amended and
    restated such that the authorized capital stock of iTurf consists of
    67,500,000 shares of Class A common stock, par value $.01 per share,
    12,500,000 shares of Class B common stock, par value $.01 per share and
    1,000,000 shares of Preferred Stock, par value $.01 per share. In addition,
    exchange of the 100 shares of common stock previously outstanding and held
    by dELiA*s into 12,500,000 shares of Class B common stock was approved. All
    share information in these financial statements and notes has been adjusted
    retroactively to reflect these changes.

         Our revenues and results of operations may be subject to seasonal
    fluctuations. Sales of apparel, accessories and footwear are generally lower
    in the first half of each year. Similarly, advertising sales in traditional
    media, such as television and radio, are generally lower in the first
    calendar half of each year.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

    PRINCIPLES OF CONSOLIDATION--The condensed consolidated financial statements
    include the accounts of iTurf Inc. and subsidiaries, all of which are wholly
    owned. All significant intercompany balances and transactions have been
    eliminated in consolidation.

    BASIS OF PRESENTATION--For periods prior to our initial public offering, the
    financial statements include expenses which have been allocated to iTurf by
    dELiA*s on a specific identification basis plus the allocated share of the
    costs associated with resources we share with dELiA*s. Allocations from
    dELiA*s for such shared resources have been made primarily on a proportional
    cost method based on related revenues and management believes these
    allocations are reasonable. Since our initial public offering, similar
    expenses are recorded in accordance with intercompany agreements. At July
    29, 2000, a portion of our intercompany expenses was prepaid.

    UNAUDITED INTERIM FINANCIAL STATEMENTS--The accompanying unaudited condensed
    consolidated financial statements have been prepared in accordance with the
    requirements for Form 10-Q and in accordance with generally accepted
    accounting principles for interim financial reporting. In the opinion of
    management, the accompanying condensed consolidated financial statements are
    presented on a basis consistent with the audited financial statements and
    reflect all adjustments (consisting of normal recurring items) necessary for
    a fair presentation of results for the interim periods presented. The
    financial statements and footnote disclosures should be read in conjunction
    with iTurf's audited financial statements and the notes thereto that are
<PAGE>

    included in iTurf's annual report on Form 10-K, which was filed with the
    Securities and Exchange Commission. Results for the interim period are
    not necessarily indicative of the results to be expected for the year.

    RECLASSIFICATIONS -- Certain amounts have been reclassified to conform to
    the current presentation.


3.       ACQUISITION

         On February 15, 2000, we acquired theSpark.com, Inc, which operates a
     community and content Web site focusing on college students and young
     adults. The consideration consisted of 1,099,988 newly-issued shares of our
     Class A common stock and the right to receive up to $13.5 million in
     additional stock (up to 2,683,634 additional shares) and cash (for any
     remaining amount earned) if certain performance goals related to the
     theSpark.com web site are met. In accordance with the purchase method of
     accounting, the results of theSpark have been included in our consolidated
     financial statements since the date of the transaction. The excess of the
     aggregate purchase price over the fair market value of net assets acquired
     of $14.1 million was allocated to goodwill based upon preliminary estimates
     of fair values and is being amortized over five years. We do not expect the
     final purchase allocation to differ significantly from the preliminary
     purchase price recorded. On a pro forma basis, assuming the acquisition had
     been completed on the first day of each fiscal year, net loss
     and loss per share for the first half of fiscal 1999 would have been
     $3.5 million and $0.21, respectively. Net revenues, net loss and loss per
     share for the first half of fiscal 2000 as well as net revenues for the
     first half of fiscal 1999 would not have been materially different from
     reported results.


4.       COMMITMENTS

         On January 30, 2000, we entered into a lease agreement for additional
     office space in the office building we currently occupy in downtown
     Manhattan. The lease term is 10 years. The lease term does not commence
     until the landlord delivers possession of the additional office space. We
     expect the landlord to deliver possession of the space during our third
     fiscal quarter of 2000. During the term of the lease, we will pay annual
     rent of approximately $800,000 subject to certain adjustments.


5.       SEGMENTS

         iTurf determines operating segments in accordance with Statement of
     Financial Accounting Standards No. 131. Prior to our September 1999
     acquisition of our OnTap business, iTurf consisted of a single segment.
     Since then, we have managed acquired businesses as separate reportable
     segments. iTurf currently earns the majority of its revenues from
     e-commerce while our new businesses earn advertising revenue on their
     Web sites.

<TABLE>
<CAPTION>
SECOND QUARTER FISCAL 2000                    ITURF          ONTAP       THESPARK           TOTAL
                                          ------------    -----------    -----------    ------------
<S>                                       <C>             <C>            <C>            <C>
Revenues from external customers          $  7,186,000    $    14,000    $   463,000    $  7,663,000
Operating loss                              (8,856,000)    (1,180,000)    (1,020,000)    (11,056,000)

<CAPTION>
FIRST HALF FISCAL 2000                        ITURF          ONTAP       THESPARK           TOTAL
                                          ------------    -----------    -----------    ------------
<S>                                       <C>             <C>            <C>            <C>
Revenues from external customers          $ 17,601,000    $    61,000    $   996,000    $ 18,658,000
Operating loss                             (15,935,000)    (3,588,000)    (1,520,000)    (21,043,000)
Total assets at period end                  54,438,000     16,199,000     13,784,000      84,421,000

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                            Second Quarter       First Half
                                             Fiscal 2000         Fiscal 2000
                                             -----------         -----------
<S>                                        <C>                 <C>
Operating loss for reportable segments     $   (11,056,000)    $   (21,043,000)
Interest and other income, net                     636,000           1,401,000
                                           ---------------     ---------------
         Loss before income taxes          $   (10,420,000)    $   (19,642,000)
                                           ===============     ===============
</TABLE>


6.       RESTRICTED STOCK

     On May 25, 2000, the compensation committee of iTurf's board of
directors approved the exchange of outstanding options held by key employees
and non-employee directors for 1,098,220 shares of restricted iTurf stock.
iTurf replaced options with restricted stock in an effort to retain these key
employees at a time when the stock options had exercise prices that were
above the current market price for iTurf stock. Certain vesting schedules of
the restricted stock were extended as compared to the option vesting schedule
in order to encourage retention of the selected employees and directors. We
expect to record the resulting compensation expense totaling $3.1 million
over the applicable vesting periods with 50%, 20%, 20%, 9% and 1% being
recognized in fiscal 2000, 2001, 2002, 2003 and 2004, respectively.

7.       SUBSEQUENT EVENTS

     On August 16, 2000, iTurf and dELiA*s agreed to combine through a merger
of dELiA*s and a wholly-owned subsidiary of iTurf. As a result of the merger,
dELiA*s will become a wholly-owned subsidiary of iTurf. In the merger,
holders of dELiA*s common stock will receive 1.715 shares of Class A common
stock of iTurf for each share of dELiA*s common stock they own. In order to
complete the merger, iTurf and dELiA*s must obtain the approval of the merger
by their stockholders. iTurf must also obtain the approval by its
stockholders of an amendment to iTurf's certificate of incorporation to
increase the number of authorized shares of iTurf's common stock, to
designate additional shares of Class A common stock, to change iTurf's name
to dELiA*s iTurf Inc. and to eliminate the voting rights of iTurf's Class B
common stock upon transfer unless the transfer is approved by iTurf's board
of directors. dELiA*s must also obtain approval of Congress Financial
Corporation under its amended and restated credit agreement with dELiA*s.

     The merger will be accounted for as a "purchase" for accounting and
financial reporting purposes. The merger will be treated as a reverse
acquisition by dELiA*s of the minority interest of iTurf, that is, the shares of
iTurf's common stock that dELiA*s does not already own, because dELiA*s
stockholders will own more than 50% of the combined company.

     On August 16, 2000, dELiA*s and iTurf also announced that it intends to
divest the assets of its non-core properties, including Storybook Heirlooms
and TSI Soccer.

     On August 16, 2000, our board of directors approved an amendment to our
1999 amended and restated stock incentive plan, to be effective upon stockholder
approval, that would provide that the number of shares available for issuance
under that plan will automatically increase on the first day of each of calendar
years 2001 and 2002 by an amount equal to four percent of the total number of
shares of our Class A common stock outstanding on the last day of the
immediately preceding calendar year, or a lesser amount determined by our board
of directors. No automatic increase may exceed 1,750,000 shares.

     Between August 17 and August 25, 2000, three purported class action
complaints on behalf of iTurf stockholders were filed in Delaware Chancery
<PAGE>

Court against iTurf, dELiA*s and each of iTurf's directors. All three
complaints make virtually identical claims, alleging that dELiA*s and the
members of the iTurf board of directors have breached their fiduciary duties
to iTurf and iTurf's public stockholders and that the exchange ratio is
unfair to iTurf's public stockholders. These complaints seek class
certification and other equitable and monetary relief, including enjoining
the merger or awarding damages. We believe that the allegations are without
substantial merit and intend to vigorously contest these actions. Although we
believe that the allegations of the complaints are without substantial merit,
we can not predict at this time the outcome of any litigation or whether the
resolution of the litigation could have a material adverse effect on our
results of operations, cash flows or financial condition.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     INVESTORS SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES THERETO OF ITURF WHICH APPEAR ELSEWHERE
IN THIS REPORT. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS
THAT REFLECT ITURF'S PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW AND ELSEWHERE IN OUR REPORTS, PARTICULARLY IN
"RISK FACTORS" IN OUR MOST RECENT REGISTRATION STATEMENT ON FORM S-4, WHICH IS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

OVERVIEW

     iTurf is a leading provider, based on sales and traffic, of Internet
community, content and e-commerce services focused primarily on teens and
young adults. We provide teens and young adults with an online destination
that encompasses a network of Web sites that address this demographic group's
concerns, interests, tastes and needs. Our sites offer interactive web/zines
with proprietary content, chat rooms, posting boards, personal homepages and
e-mail, as well as online shopping opportunities.

     We believe that our continued growth will depend in large part on our
ability to increase our brand awareness, provide our customers with superior
Internet community and e-commerce experiences and continue to enhance our
systems and technology to support increased traffic to our Web sites. We intend
to invest heavily in marketing and promotion, including advertising in our
parent's print catalogs, and to further develop our Web sites, technology and
operating infrastructure. As a result, we expect to record substantial net
losses for the foreseeable future.

     On February 15, 2000, we acquired theSpark.com, Inc, which operates a
community and content Web site focusing on college students and young adults.
The consideration consisted of 1,099,988 newly-issued shares of our Class A
common stock valued at $14.2 million based on iTurf's closing share price on the
day prior to the announcement of the transaction and the right to receive up to
$13.5 million in additional stock (up to 2,683,634 additional shares) and cash
(for any remaining amount earned) if certain performance goals related to the
acquired web site are met. In accordance with the purchase method of accounting,
the results of theSpark have been included in our consolidated financial
statements since the date of the transaction.

     On May 25, 2000, the compensation committee of iTurf's board of
directors approved the exchange of outstanding options held by key employees
and non-employee directors for 1,098,220 shares of restricted iTurf stock.
iTurf replaced options with restricted stock in an effort to retain these key
employees at a time when the stock options had exercise prices that were
above the current market price for iTurf's stock. Certain vesting schedules
of the restricted stock were extended as compared to the option vesting
schedule in order to encourage retention of the selected employees and
directors. We expect to record the resulting compensation expense totaling
$3.1 million over the applicable vesting periods with 50%, 20%, 20%, 9% and
1% being recognized in fiscal 2000, 2001, 2002, 2003 and 2004, respectively.

     On August 16, 2000, iTurf and dELiA*s agreed to combine through a merger of
dELiA*s and a wholly-owned subsidiary of iTurf. As a result of the merger,
dELiA*s will become a wholly-owned subsidiary of iTurf. In the merger, holders
of dELiA*s common stock will receive 1.715 shares of Class A common stock of
iTurf for each share of dELiA*s common stock they own. In order to complete the
merger, iTurf and dELiA*s must obtain the approval of the merger by their
stockholders. iTurf must also obtain the approval by its stockholders of an
amendment to iTurf's certificate of incorporation to increase the number of
<PAGE>

authorized shares of iTurf's common stock and to designate additional shares
of Class A common stock.

     The merger will be accounted for as a "purchase" for accounting and
financial reporting purposes. The merger will be treated as a reverse
acquisition by dELiA*s of the minority interest of iTurf, that is, the shares
of iTurf's common stock that dELiA*s does not already own, because dELiA*s
stockholders will own more than 50% of the combined company.

     On August 16, 2000, dELiA*s and iTurf also announced that it intends to
divest the assets of its non-core properties, including Storybook Heirlooms
and TSI Soccer. In addition, we may take a material noncash charge to
earnings in the third quarter related to the possible discontinuation of one
of our business operations.

     Because we sell many of the same products our parent's other businesses do
and advertise our offerings to our parent's non-Internet customers, we compete
directly with our parent's other businesses. Because of our promotional pricing
and our minority public ownership, our success at selling products to our
parent's customers has had an adverse effect on our parent's operating results
and cash flows. As we have become more successful in this regard, our parent's
financial condition has become adversely affected. Material adverse changes to
our parent's financial condition jeopardize our ability to continue to obtain
goods and services from our parent under the intercompany agreements. As a
result, if the proposed merger is not consummated, we may be required to
renegotiate the terms of the intercompany agreements or provide financing to our
parent in order to ensure that we can continue to obtain goods and services from
our parent.

     In view of the rapidly changing nature of iTurf's business and our limited
operating history, as well as the changes in our relationship with our parent
and our expected seasonality, iTurf believes that period-to-period comparisons
of our operating results, including our gross profit margin and operating
expenses as a percentage of sales, are not necessarily meaningful. You should
not rely on this information as an indication of future performance.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                          THIRTEEN WEEKS                TWENTY-SIX WEEKS
                                              ENDED                           ENDED
                                  JULY 31, 1999  JULY 29, 2000    JULY 31, 1999    JULY 29, 2000
                                  -------------  -------------    -------------    -------------
<S>                                   <C>            <C>              <C>              <C>
Net revenues                          100.0%         100.0%           100.0%           100.0%
Cost of product sales                  55.9           50.6             53.6             50.1
                                    --------        -------         --------          -------
Gross profit                           44.1           49.4             46.4             49.9
Operating expenses                    137.3          193.7            104.3            162.7
Interest expense (income), net        (33.5)          (8.3)           (19.8)            (7.5)
                                    --------        -------         --------          -------
Loss before income taxes              (59.7)        (136.0)           (38.1)          (105.3)
Benefit for income taxes                 --             --             (2.9)              --
                                    --------        -------         --------          -------
Net loss                              (59.7)%       (136.0)%          (35.2)%         (105.3)%
                                    ========        =======         ========          =======
</TABLE>

COMPARISON OF THIRTEEN WEEKS ENDED JULY 31, 1999 AND JULY 29, 2000
<PAGE>

     NET REVENUES. Net revenues increased from $3.0 million in the second
quarter of fiscal 1999 to $7.7 million for the same period of fiscal 2000. The
increase primarily relates to dELiAs.cOm sales. Advertising, subscription and
licensing revenues were approximately $1.3 million for the second quarter of
fiscal 2000 compared to approximately $400,000 for the same period of the prior
year as a result of both growth on our existing sites and acquisition of new
sites.

     GROSS PROFIT. Gross profit increased from 44.1% for the second quarter
of fiscal 1999 to 49.4% for the same period in fiscal 2000. These
improvements relate to increases in the proportion of higher margin revenue,
particularly advertising revenue and dELiAs.cOm product sales. Product gross
margin increased from 36.5% in the second quarter of fiscal 1999 to 39.4% in
the second quarter of fiscal 2000.

     OPERATING EXPENSES. Operating expenses are comprised of:

     o    selling and marketing expenses, which include advertising costs,
          credit card fees, trademark licensing and distribution costs;
     o    technology and content development expenses, which include site
          development, editorial content and systems costs;
     o    general and administrative expenses; and
     o    goodwill amortization expense.

     Total operating expenses, including direct expenses and expenses charged
by our parent in connection with intercompany agreements, increased from $4.1
million, or 137.3% of revenues, in the second quarter of fiscal 1999 to $14.8
million, or 193.7% of revenues, in the second quarter of fiscal 2000. This
increase is due to a substantial increase in advertising, product development
and overhead costs to support the launch of our iTurf.com hub site and the
continued expansion of the other sites of our iTurf network, increased
amortization expense relating to the acquisition of onTap.com and the
Spark.com and a noncash charge relating to the issuance of restricted stock.

COMPARISON OF TWENTY-SIX WEEKS ENDED JULY 29, 2000 AND JULY 31, 1999

     NET REVENUES. Net revenues increased from $5.6 million in the first half of
fiscal 1999 to $18.7 million for the same period in fiscal 2000. The increase
primarily relates to delias.cOm sales and increased advertising revenue.
Advertising, subscription and licensing revenues were approximately $2.3 million
for the first half of fiscal 2000 and $500,000 for the same period of fiscal
1999.

     GROSS PROFIT. Gross profit increased from 46.4% for the first half of
fiscal 1999 to 49.9% for the same period in fiscal 2000. These improvements
relate to increases in the proportion of higher margin revenue, particularly
advertising revenue and dELiAs.cOm product sales. Product gross margin
increased from 40.6% in the first half of fiscal 1999 to 43.0% in the first
half of fiscal 2000.

     OPERATING EXPENSES. Total operating expenses increased from $5.8
million, or 104.3% of revenues, in the first half of fiscal 1999 to $30.4
million, or 162.7% of revenues, in the first half of fiscal 2000. This
increase is due to a substantial increase in advertising, product development
and overhead costs to support the continued expansion of iTurf, increased
amortization expense relating to the acquisition of onTap.com and the
Spark.com and a noncash charge relating to the issuance of restricted stock.

<PAGE>

QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY

     Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control.
These factors include:

     o    seasonal fluctuations in consumer purchasing patterns and advertising
          spending;
     o    mix of product and other revenues;
     o    timing of, response to and quantity of our parent's catalog and our
          own electronic mailings;
     o    changes in the growth rate of Internet usage;
     o    actions of competitors;
     o    the timing and amount of costs relating to the expansion of our
          operations and acquisitions of technology or businesses; and
     o    general economic and market conditions.

     Our limited operating history and rapid growth make it difficult to
ascertain the effects of seasonality on our business. We believe that
period-to-period comparisons of our historical results are not necessarily
meaningful and should not be relied upon as an indication of future results.


LIQUIDITY AND CAPITAL RESOURCES

     Operating activities used net cash of $23.9 million during the first half
of fiscal 2000 compared to $3.1 million for the same period of fiscal 1999. The
significant increase in cash usage relates primarily to higher operating
expenses as well as prepayments of advertising and inventory.

     Investing activities in the first half of fiscal 2000, primarily the
maturity of investments, provided approximately $16.2 million. Net cash used in
investing activities of $74.7 million for the first half of fiscal 1999 relate
primarily to our purchase of marketable securities and shares of dELiA*s common
stock from our parent in connection with our initial public offering. We expect
to make capital expenditures of approximately $2.4 million in fiscal 2000,
including investments in technology and physical infrastructure. In addition, a
portion of our resources may be used to fund acquisitions or investments in
businesses, products and technologies that are complementary to our current
business. We also expect to continue to spend significant amounts for marketing
and other alliances.

     While our cash on hand is not used in our parent's non-Internet businesses,
we periodically prepay dELiA*s for inventory and various services, including
advertising, under the intercompany agreements. At July 29, 2000, our net
prepaid balance was $8.6 million. These prepayments are not secured. A third
party creditor has a perfected security interest in the inventory for which we
have prepaid, which is senior to any interest we may have in this inventory. As
a result, if our parent were to default on its obligations to this third party
creditor, we might suffer a loss of all or part of these prepaid expenses.

     Financing activities were not significant in the first half of fiscal 2000
compared to the $99.8 million provided primarily by our initial public offering
in the same period of fiscal 1999.

     Prior to our April 1999 initial public offering, we relied on our parent
for financing capital expenditures. Our capital requirements depend on numerous
factors, including:

     o    the rate of market acceptance of iTurf's online presence;
<PAGE>

     o    our ability to expand iTurf's customer base;
     o    the cost of upgrades to our online presence; and
     o    our level of expenditures for sales and marketing.

     The timing and amount of such capital requirements cannot accurately be
predicted. Additionally, we will continue to evaluate possible investments in
businesses, products and system technologies and to develop plans to expand our
sales and marketing programs and conduct more aggressive brand promotions. We
believe that our cash on hand, together with our cash from operations, will be
sufficient to meet anticipated cash needs for at least the next 12 months.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     We maintain the majority of our excess funds in marketable securities.
These financial instruments are subject to interest rate risk and will decline
in value if interest rates increase. We do not believe that a change of 100
basis points in interest rates would have a material effect on our financial
condition.
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Between August 17 and August 25, 2000, three purported class action
complaints on behalf of iTurf stockholders were filed in Delaware Chancery
Court against iTurf, dELiA*s and each of iTurf's directors. These actions
include: Pack v. Kahn, et al., Del. Ch., C.A. No. 18242NC, Semeraro v. Kahn,
et al., Del. Ch., C.A. No. 18258, and Engel v. Kahn, et al., Del. Ch., C.A.
No. 18260NC. All three complaints make virtually identical claims, alleging
that dELiA*s and the members of the iTurf board of directors have breached
their fiduciary duties to iTurf and iTurf's public stockholders and that the
exchange ratio is unfair to iTurf's public stockholders. These complaints
seek class certification and other equitable and monetary relief, including
enjoining the merger or awarding damages. We believe that the allegations are
without substantial merit and intend to vigorously contest these actions.
Although we believe that the allegations of the complaints are without
substantial merit, we can not predict at this time the outcome of any
litigation or whether the resolution of the litigation could have a material
adverse effect on our results of operations, cash flows or financial
condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

USE OF PROCEEDS FROM REGISTERED SECURITIES

     On April 8, 1999, the Securities and Exchange Commission declared effective
our registration statement (No. 333-15153) on Form S-1, as then amended,
relating to our initial public offering of 4,830,000 shares of Class A common
stock, 630,000 shares of which were issued upon exercise of an overallotment
option granted by us to the underwriters.

     The public offering commenced on April 9, 1999 and terminated upon the sale
of all of the 4,830,000 shares of Class A common stock which were registered for
sale. The offering was completed on April 14, 1999. The aggregate offering price
of the securities sold was $106,260,000. All of the securities registered were
sold for our account.

     We incurred the following expenses in connection with the issuance and
distribution of the Common Stock registered:

<TABLE>
<S>                                                                   <C>
     Underwriting discounts and commissions                           $7,438,000

     Other expenses (legal and accounting fees and expenses,           1,413,000
     printing and engraving expenses, filing and listing fees,
     transfer agent and registrar fees and miscellaneous)
</TABLE>

     The net offering proceeds to iTurf after deducting the foregoing expenses
were $97,409,000. Other than the amounts set forth for underwriting discounts
and commissions, the foregoing represent reasonable estimates of expenses.

     From April 14, 1999 until July 29, 2000, approximately $41.1 million of the
net offering proceeds was used for general corporate purposes and $17.7 million
was used to purchase 551,046 shares of common stock of dELiA*s Inc.

CHANGES IN SECURITIES
<PAGE>

     None.

SALES OF UNREGISTERED SECURITIES


     On May 25, 2000, the compensation committee of iTurf issued 1,098,220
shares of restricted stock to key employees and non-employee directors in
exchange for their outstanding stock options. These issuances did not
constitute "sales" within the meaning of the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  See "Exhibit Index" following the signature page.

     (b)  We did not file any reports on Form 8-K during the fiscal quarter.
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements 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.

                                   iTurf Inc.
                                   (Registrant)
Date: September 12, 2000

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


                                   By: /s/ DENNIS GOLDSTEIN
                                       -------------------------------------
                                           Dennis Goldstein
                                           Chief Financial Officer and Treasurer
                                           (principal financial and accounting
                                           officer)
<PAGE>

                                  EXHIBIT INDEX


2.1      Agreement and Plan of Merger dated February 4, 2000, by and among
         iTurf, iTurf Caveman Acquisition Corporation, theSpark.com, Inc.
         ("Spark"), and the stockholders of Spark (incorporated by reference to
         Exhibit 2.1 to the iTurf Inc. Current Report on Form 8-K dated February
         25, 2000)
2.2      Agreement and Plan of Merger by and among dELiA*s Inc., iTurf Inc.
         and iTurf Breakfast Corporation dated August 16, 2000 (incorporated
         by reference to Annex A of the joint proxy/prospectus included within
         the iTurf Inc. registration statement on Form S-4 (Registration
         No. 333-44916)).
3.1      Restated Certificate of Incorporation of iTurf (incorporated by
         reference to Exhibit 3.1 to the iTurf Inc. Registration Statement on
         Form S-1 (Registration No. 333-71123))
3.2      By-laws of iTurf (incorporated by reference to Exhibit 3.2 to the iTurf
         Inc. Registration Statement on Form S-1 (Registration No. 333-71123))
10.1     Form of Intercompany Services Agreement (incorporated by reference to
         Exhibit 10.1 to the iTurf Inc. Registration Statement on Form S-1
         (Registration No. 333-71123))
10.2     Form of Trademark License and Customer List Agreement (incorporated by
         reference to Exhibit 10.2 to the iTurf Inc. Registration Statement on
         Form S-1 (Registration No. 333-71123))
10.3     Form of Intercompany Indemnification Agreement (incorporated by
         reference to Exhibit 10.3 to the iTurf Inc. Registration Statement on
         Form S-1 (Registration No. 333-71123))
10.4     Form of Tax Allocation Agreement (incorporated by reference to Exhibit
         10.4 to the iTurf Inc. Registration Statement on Form S-1 (Registration
         No. 333-71123))
10.5     Form of iTurf Common Stock Registration Rights Agreement (incorporated
         by reference to Exhibit 10.5 to the iTurf Inc. Registration Statement
         on Form S-1 (Registration No. 333-71123))
10.6     Form of dELiA*s Common Stock Registration Rights Agreement
         (incorporated by reference to Exhibit 10.6 to the iTurf Inc.
         Registration Statement on Form S-1 (Registration No. 333-71123))
10.7     Form of Customer Service Agreement (incorporated by reference to
         Exhibit 10.7 to the iTurf Inc. Registration Statement on Form S-1
         (Registration No. 333-71123))
10.8     [omitted]
10.9     1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.9 to
         the iTurf Inc. Registration Statement on Form S-1 (Registration No.
         333-71123))
10.10    Employment Agreement between iTurf and Stephen I. Kahn (incorporated by
         reference to Exhibit 10.10 to the iTurf Inc. Registration Statement on
         Form S-1 (Registration No. 333-71123))
10.11    Employment Agreement between iTurf and Alex S. Navarro (incorporated by
         reference to Exhibit 10.11 to the iTurf Inc. Registration Statement on
         Form S-1 (Registration No. 333-71123))
10.12    Employment Agreement between iTurf and Oliver Sharp (incorporated by
         reference to Exhibit 10.12 to the iTurf Inc. Registration Statement on
         Form S-1 (Registration No. 333-71123))
10.13    Employment Agreement between iTurf and Dennis Goldstein (incorporated
         by reference to Exhibit 10.13 to the iTurf Inc. Registration Statement
         on Form S-1 (Registration No. 333-71123))
10.14    [omitted]
10.15    [omitted]
10.16    Advertising Agreement between iTurf and America Online, Inc., dated May
         4, 1999 (incorporated by reference to Exhibit 10.16 to the iTurf Inc.
         Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
         1999)**
10.17    Online Advertising Authorized Reseller Agreement between iTurf,
         [email protected] and MarketSource Corporation, dated September 1, 1999
         (incorporated by reference to Exhibit 99.1 to the iTurf Inc. Current
         Report on Form 8-K dated September 7, 1999)
10.18    Offline Advertising Purchase Agreement between iTurf and MarketSource
         Corporation, dated September 1, 1999 (incorporated by reference to
         Exhibit 99.2 to the iTurf Inc. Current Report on Form 8-K dated
         September 7, 1999)
10.19    [omitted]
10.20    Lease Agreement dated January 30, 2000 by and between iTurf and the
         State-Whitehall Company (incorporated by reference to Exhibit 10.20 to
         the iTurf Inc. Annual Report on Form 10-K for the fiscal year ended
         January 29, 2000)
10.21    Registration Rights Agreement dated February 15, 2000 by and between
         iTurf and former stockholders of TheSpark.com Inc. (incorporated by
         reference to Exhibit 10.21 to the iTurf Inc. Annual Report on Form 10-K
         for the fiscal year ended January 29, 2000)
27.1*    Financial Data Schedule

*    Filed herewith
**   Confidential treatment granted as to certain portions, which portions have
     been omitted and filed separately with the SEC.
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