DEB SHOPS INC, 10-K, 1996-04-29

DEB SHOPS INC
10-K, 1996-04-29
WOMEN'S CLOTHING STORES

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM l0-K
(Mark One)

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

For the fiscal year ended January 31, 1996
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
---------------------- ---------------------

Commission File Number 0-12188
-----------------------------------------------------

DEB SHOPS, INC.
(Exact name of registrant as specified in its charter)
9401 Blue Grass Road, Philadelphia, PA 19114
(Address of principal executive offices and zip code)

Pennsylvania 23-1913593
(State of Incorporation) (I.R.S. Employer Identification No.)

(215) 676-6000
(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share.

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

Yes X No
--------------- --------------

As of April 5, 1996, 12,844,680 shares of the Company's Common Stock,
par value $.01 per share, were outstanding. The aggregate market value (based
upon the closing price on April 5, 1996) held by non-affiliates was
approximately $16,273,544.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement to be filed within 120 days after the end of the fiscal
year in connection with the Annual Meeting to be held on May 22, 1996 -
incorporated in Part III.

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
-----
<PAGE>

PART 1

Item 1. Business

General

Deb Shops, Inc. (the "Company") operates 298 women's specialty apparel
retail stores ("Deb") offering moderately priced, fashionable, coordinated
women's sportswear, dresses, coats, lingerie, accessories and shoes for junior
sizes. The Company will introduce plus sizes into approximately one-third of the
chain by May, 1996. Deb merchandise consists of clothing and accessories
appealing primarily to the fashion-conscious junior-sized female consumers
between the ages of 13 and 40. In addition to 292 stores operating under the
name "DEB" and one operating under the name "JOY", the Company operates five
outlet stores under the name "CSO". The outlet stores offer the same merchandise
as DEB and JOY at reduced prices and serve as clearance stores for slow-moving
inventory.

The Company also operates 10 apparel retail stores under the name Tops
'N Bottoms. Tops 'N Bottoms sells moderately priced men's and women's apparel.
Thirty-six of the Deb stores contain Tops 'N Bottoms departments.

In October 1995, the Company acquired substantially all of the net
assets of the Atlantic Book chain for a purchase price of approximately
$4,500,000. Atlantic operates 14 locations, including 11 "Atlantic Book Shops",
which are small limited selection book stores, generally open seasonally in New
Jersey and Delaware shore resort towns. Atlantic Books also operates three much
larger "Atlantic Book Warehouses" which are full-service book stores emphasizing
bargain books. The Atlantic Book Warehouse stores are located in
Montgomeryville, PA, Cherry Hill, NJ and Dover, DE.

In the opinion of management, at the present time, the results of
operations of the Company's book store business are not material to the
Company's consolidated results of operations either (i) when compared to the
Company as a whole or (ii) when compared to the Company's apparel store
business, and therefore, the Company has not separately reported results of
operations of the book store business.

Merchandising and Marketing

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

Tops 'N Bottoms caters primarily to young men and junior-sized women.
Much of the merchandise is brand names and is unisex, capable of being worn by
men or women.

The Company purchases its merchandise in volume, sells it at moderate
prices, and has a policy of early mark-downs of slow-moving inventory. A special
effort is made to select and present coordinated outfits on a rotating basis and
featured merchandise is changed approximately twice a week.

A computerized point of sale merchandise data system provides detailed
daily information regarding sales and inventory levels by style, color, class
and department, thereby permitting the Company to analyze market trends and
changing store needs. Since merchandise control statistics are available on a

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daily basis, the Company can identify slow-moving merchandise and respond to
customer buying trends when making repurchase decisions and mark-down
adjustments. This permits the Company to maintain current and fresh merchandise
in its stores.

The Company experiences the normal seasonal pattern of the retail
apparel industry with its peak sales occurring during the Christmas,
Back-to-School and Easter periods. To keep merchandise fresh and fashionable,
slow-moving merchandise is marked down throughout the year. End-of-season sales
are conducted twice a year (in the second and fourth quarters), in keeping with
the Company's policy of carrying a minimal amount of seasonal merchandise over
from one year to another. If unsold at the end of the seasonal sales,
merchandise is transferred to the Company's CSO stores.

Stores

Originally, the business of the Company was located in Pennsylvania and
New Jersey. As the business grew and expanded into other states, the Company
expanded its principal regional focus to include both the northeast and midwest
sections of the United States. During the fiscal year ended January 31, 1996,
Deb opened one additional store (while closing 33 stores). Tops 'N Bottoms
closed one store. Deb also opened two Tops 'N Bottoms departments within Deb
stores. At the present time the Company does not have any new stores or Tops `N
Bottoms departments scheduled to open in fiscal 1997. The Company is currently
scheduled to close nine stores in the first half of fiscal 1997. The Company
plans to continue to carefully evaluate the profitability of individual stores
and close those stores which it believes cannot become profitable or maintain
profitability.

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

Year Ended January 31,
------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Open at beginning
of fiscal year................ 342 365 373 368 341
Opened during fiscal year..... 32 24 11 8 1
Closed during fiscal year..... (9) (16) (16) (35) (34)
---- ---- ---- ---- -----
Open at end of fiscal year.... 365 373 368 341 308
==== ==== ==== ==== ====

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The following table shows the states in which the Company's 308
existing stores are located.

New England East Midwest

Connecticut 2 Delaware 1 Illinois 16
Maine 3 Maryland 6 Indiana 10
Massachusetts 11 New Jersey 12 Iowa 5
Rhode Island 1 New York 36 Kansas 3
-- Pennsylvania 47 Kentucky 6
17 Virginia 13 Michigan 23
West Virginia 7 Minnesota 8
--- Missouri 7
122 Nebraska 1
North Dakota 2
Ohio 27
South Dakota 1
Wisconsin 15
---
124

South West

Alabama 1 California 2
Georgia 1 Colorado 4
Louisiana 1 Idaho 2
South Carolina 1 New Mexico 3
Tennessee 5 Oklahoma 5
-- Oregon 6
9 Texas 7
Utah 2
Washington 5
--
36

Deb stores, which are typically 5,700 square feet, are located
primarily in enclosed regional shopping malls and selected strip centers. Deb
stores with Tops 'N Bottoms departments are typically 8,000 square feet and are
all located in enclosed regional malls. Tops 'N Bottoms stores are all located
in enclosed regional malls and range in size from 2,300 to 3,400 square feet.
New stores are opened in existing malls, existing mall expansions, new malls and
occasionally, strip centers. Factors considered in opening new stores include
the availability of suitable locations and negotiation of satisfactory lease
terms, both of which are considered essential to successful operations. Key
considerations in selecting sites for new stores include the geographic location
of the center, the demographics of the surrounding area, the principal specialty
and "anchor" stores within the center, expected customer traffic within the
center, and the location of the Company's store within the center itself.

Stores are distinctively designed for customer identification and are
remodeled, when necessary. The stores are open generally from l0:00 A.M. to 9:30
P.M., Monday through Saturday, and from Noon to 5:00 P.M. on Sunday.

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Operations

Payments for most of the Company's sales are made in cash, and the
balance are made with MasterCard, Visa, Discover and the Company's private label
credit cards. For customer convenience, the Company provides lay-away plans. The
Company's policy is to permit returns of merchandise for exchange or for a full
cash or credit refund, at the customer's preference.

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

The responsibility for managing the Company's stores rests with the
Director of Store Operations and a staff of thirty-five employees consisting of
Regional and District Supervisors. A District Supervisor is responsible for an
average of ten stores, each of which is staffed by a Store Manager and an
Assistant Store Manager and two Junior Assistant Store Managers. The District
and Regional Supervisors visit the stores regularly to review merchandise
levels, content and presentation, staff training and personnel issues, store
security and cleanliness and adherence to standard operating procedures.

The merchandising department consists of forty-one employees, including
the Senior Vice President, Merchandising, Vice President, Merchandising,
Merchandise Managers and Buyers. The department is responsible for purchasing,
pricing (including mark-downs), inventory planning and allocating merchandise
among the stores. The merchandising department's staff is organized in the
following apparel categories: sportswear, dresses, coats, lingerie, hosiery,
accessories and plus sizes.

At January 31, 1996, the Company had approximately 2,600 employees,
approximately 60% of whom were employed on a part-time basis. The Company has a
collective bargaining agreement with the United Paperworkers International
Union, Philadelphia Local 286 (UPIU) which expires on December 31, 1998. The
UPIU represents the Company's warehouse employees. The collective bargaining
agreement covers approximately 80 employees. The Company considers its employee
relations to be good.

Competition

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

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

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Item 2. Properties

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

Under most leases, the Company is required to pay, in addition to fixed
minimum rental payments, charges for real estate taxes, common area maintenance
fees, utility charges, insurance premiums, mall association charges and
contingent rentals based upon a percentage of sales in excess of specified
amounts.

The following table shows the years in which executed store leases
existing at January 31, 1996 expire.

Calendar Years Number of Leases Expiring
-------------- -------------------------
1996 - 1997........................... 57
1998 - 1999........................... 68
2000 - 2001........................... 65
2002 - 2003........................... 62
2004 - 2005........................... 31
2006 - 2007........................... 11
2008 and thereafter................... 14
---
Total............................... 308
===

The Company leases its warehouse, distribution and office space,
aggregating 280,000 square feet, pursuant to a twenty year lease dated and
effective June 15, 1982. This facility is a modern, one story industrial
building situated on approximately 20 acres located in the northeast section of
Philadelphia. See Item 13. Certain Relationships and Related Transactions.

With respect to the locations of present stores, see Item 1.
Business-Stores.

Acquisition of Atlantic Books

On October 20, 1995 (the "Closing Date") the Company acquired
substantially all of the net assets of the Atlantic Book chain for a purchase
price of approximately $4,500,000. The Atlantic Book chain consists of 14 stores
including three full service warehouse stores located in Montgomeryville, PA,
Cherry Hill, NJ and Dover, DE. Atlantic emphasizes convenience, selection and
value. The Company considers the warehouse format to be positioned to capitalize
on today's consumers' demands for these features. Atlantic's main concentration
is in bargain books that are sold at significant discounts from publishers'
original retail prices. Atlantic also offers an extensive selection of
best-sellers and other hardcover and paperback books and magazines. Each
warehouse store is conducive to browsing and shopping, including super-market
style shopping carts for the customer who wants to purchase multiple selections.

The chain trades as Atlantic Books Shops and Atlantic Book Warehouse.
The eleven non-warehouse stores are located in resort areas in Delaware and New
Jersey. These resort stores range in size from 1,000 to 2,000 square feet.

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The warehouse stores range in size from 12,000 to 26,000 square feet. The
warehouse store in Montgomeryville, PA includes the offices for the chain and
general warehouse space as well as the retail store.

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

The Company intends to expand the book chain principally through the
addition of warehouse stores in high traffic areas. The current focus is on
stand alone sites and strip centers for the new stores where appropriate, new
resort stores will also be considered. Current plans call for one new warehouse
store and one new resort store, which will replace two existing resort stores.

Item 3. Legal Proceedings

The Company is involved in certain litigation incidental to the normal
conduct of its business, none of which individually, or in the aggregate,
appears likely to result in materially adverse consequences for the Company.

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

None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3) of Form 10-K, the following list
is included as an un-numbered Item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 22, 1996.

The executive officers of the Company, each of whom serves at the
discretion of the Board of Directors, are as follows.

Name Age Position with Company Officer Since
---- --- --------------------- -------------
Marvin Rounick 56 Director, President and
Chief Executive Officer 1973
Warren Weiner 52 Director, Executive Vice
President, Secretary and Treasurer 1973
Allan Laufgraben 57 Senior Vice President, Merchandising 1995
Barry Vesotsky 50 Vice President, Merchandising 1981
Stanley A. Uhr 50 Vice President, Real Estate
Corporate Counsel 1988
Lewis Lyons 42 Vice President, Finance and
Chief Financial Officer 1992
Marvin Waxman 51 Controller 1985

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

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

Allan Laufgraben has been employed by the Company since December 1995,
as Senior Vice President, Merchandising. For more than five years prior thereto
he was with Petrie Stores Corporation as Executive Vice President and with
Petrie Retail, Inc. as President and Chief Executive Officer.

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

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

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

Marvin Waxman has been employed by the Company in his present capacity
since 1985.

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<PAGE>

PART II

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

Market Information

The Company's Common Stock is traded on the over-the-counter market
(NASDAQ National Market). Symbol: DEBS.

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

1996 High Low
- ---- ---- ---
First Quarter $5.125 $3.750
Second Quarter 4.250 2.875
Third Quarter 4.125 3.375
Fourth Quarter 3.8125 3.250

1995 High Low
- ---- ---- ---
First Quarter $7.250 $6.125
Second Quarter 7.375 6.625
Third Quarter 7.125 4.625
Fourth Quarter 5.375 3.000

Holders

As of April 5, 1996, there were 436 holders of record of the Company's
Common Stock.

Dividends

The Company paid regular quarterly dividends for each of the fiscal
quarters in the two most recent fiscal years. The per share amount of these
dividends was $.05 for each of the fiscal quarters of fiscal 1995 and 1996. The
Company intends to follow a policy of regular quarterly cash dividends, subject
to earnings, capital requirements and the operating and financial condition of
the Company, among other factors.

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<PAGE>

Item 6. Selected Financial Data

The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included herein.

Deb Shops, Inc.

Consolidated Financial Highlights

<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------------------------------------
(in thousands, except per share and ratio data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $176,733 $202,938 $221,070 $229,459 $220,337
Cost of Sales, Including Buying
and Occupancy Costs 142,347 162,000 166,569 172,027 163,647
(Loss) Income Before Income Taxes (6,224) (4,619) 7,396 10,352 12,419
Net (Loss) Income (4,224) (2,719) 5,146 7,252 8,594
Net (Loss) Income as a Percent
of Net Sales (2.4%) (1.3%) 2.3% 3.2% 3.9%
Net (Loss) Income Per Common Share (.33) (.21) .33 .46 .55
Total Assets 95,597 106,202 132,932 131,238 127,278
Capital Lease Obligations 1,986 2,040 2,040 2,040 2,040
Shareholders' Equity 80,493 87,383 109,389 107,346 103,187
Book Value per Share at Year End 6.27 6.80 6.98 6.86 6.58
Cash Dividend per Share of Common
Stock .20 .20 .20 .20 .20
</TABLE>

Not covered by report of Independent Public Accountants.

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<PAGE>

Item 7.

MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND OPERATIONS

Overview

Deb Shops, Inc. (the "Company") operates 298 women's specialty apparel
retail stores offering moderately priced, fashionable, coordinated sportswear,
dresses, coats, lingerie, accessories and shoes for junior sized women. The
Company also operates 10 Tops `N Bottoms stores which sell moderately priced
men's and women's apparel.

Results of operations for the Company for the fiscal year ended January
31, 1996 are presented on a consolidated basis and are segmented to provide
relevant information concerning the Company's retail apparel store business
which is the Company's principal line of business. In the opinion of management,
at the present time, the results of operations of the Company's book store
business are not material to the Company's consolidated results of operations
either (i) when compared to the Company as a whole or (ii) when compared to the
Company's apparel store business, and therefore, the Company has not separately
reported results of operations of the book store business.

Results of Operations - Consolidated

Net sales decreased $26,205,000 (12.9%) from fiscal 1995 to 1996 and
decreased $18,133,000 (8.2%) from fiscal 1994 to 1995. The decrease in net sales
in fiscal 1996 was principally attributable to the decrease in the number of
apparel stores, a decrease in comparable store sales of 10.4%, and continued
customer resistance to product and pricing. The decrease in net sales in fiscal
1995 was principally attributable to continued customer resistance to product
and pricing and a lack of fashion direction in the women's specialty apparel
industry. For further information see "Results of Operations - Apparel
Business".

Net loss increased $1,505,000 (55.4%) from fiscal 1995 to 1996 and
decreased $7,865,000 (152.8%) from fiscal 1994 to 1995. As a percentage of net
sales, the net (loss) income was (2.4%) in fiscal 1996, (1.3%) in fiscal 1995,
and 2.3% in fiscal 1994. The decrease in fiscal 1996 was primarily attributable
to the decrease in total sales offset by a slight increase in margins. The
decrease in fiscal 1995 was primarily attributable to the decrease in total
sales, along with decreased margins as a result of increased competitive
pressures and continued customer resistance. Sales and margins at these levels
are insufficient to cover fixed overhead. The net loss for fiscal 1995 was
partially offset (to the extent of $600,000) by refunds of insurance premiums
received during the quarter ended April 30, 1994. The decrease in net income in
fiscal 1994 was primarily attributable to the continued lack of customer
confidence and increased expenses as a percentage of sales. During the years

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reported, comparable store sales decreased. See "Results of Operations - Apparel
Business". The primary reason for the decrease in comparable store sales was
customer resistance to product and pricing and a lack of fashion direction in
the women's specialty apparel industry. The trend toward lower sales has
continued into the first quarter of fiscal 1997. The trend toward lower
comparable store sales has continued at a decreasing rate into the first quarter
of fiscal 1997.

Cost of sales, including buying and occupancy costs, decreased
$19,653,000 (12.1%) from fiscal 1995 to 1996 and decreased $4,570,000 (2.7%)
from fiscal 1994 to 1995. The decrease in cost of sales, buying and occupancy
costs from fiscal 1995 to 1996 and from fiscal 1994 to 1995 was due to the
decline in average net sales per apparel store and a decline in the average
number of apparel stores in operation. As a percentage of net sales these costs
were 80.5% during fiscal 1996, 79.8% during fiscal 1995, and 75.3% during fiscal
1994. Buying and occupancy costs were 21.6%, 19.7% and 18.0% of sales for the
fiscal years 1996, 1995 and 1994, respectively. These percentage increases
resulted principally from decreased comparable store sales.

Selling and administrative expenses decreased $3,671,000 (8.7%) from
fiscal 1995 to 1996 and $2,255,000 (5.1%) from fiscal 1994 to 1995. The decrease
in selling and administrative expenses for both fiscal years was principally due
to decreases in the number of stores, decreases in sales, and continuing control
over expenses. In addition, the decrease in selling and administrative expenses
from fiscal 1994 to 1995 was due to approximately $600,000 of refunds received
for health and workers' compensation insurance as a result of favorable
experience. As a percentage of net sales, these expenses were 21.9% during
fiscal 1996, 20.9% during fiscal 1995 and 20.2% during fiscal 1994.

The decrease in depreciation and amortization expenses in fiscal 1996
was principally attributed to the write-off of leasehold improvements of closed
stores.

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Results of Operations - Apparel Business

Net sales decreased $29,383,000 (14.5%) from fiscal 1995 to 1996 and
decreased $18,133,000 (8.2%) from fiscal 1994 to 1995. The decrease in net sales
in fiscal 1996 and 1995 was principally attributable to continued customer
resistance to product and pricing and a lack of fashion direction in the women's
specialty apparel industry. The following table sets forth certain per store
information.
<TABLE>
<CAPTION>

Per Store Data(1)
Year Ended January 31,
---------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stores open at end of the period .................... 308 341 368
Average number in operation during the period ....... 334 357 371
Average net sales per store (in thousands) .......... $ 520 $ 568 $ 596
Average net income (loss) per store (in thousands)... ($ 13) ($ 8) $ 14
Comparable Stores Sales2 - Percent Change ........... (10.4%) (7.9%) (5.9%)
</TABLE>

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

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<PAGE>

Since fiscal 1993 the Company has trended toward lower sales and since
fiscal 1991 the Company has trended toward lower earnings. Sales have been lower
principally due to lower demand as a result of increased customer resistance to
product and pricing and a lack of fashion direction in the women's specialty
apparel industry. Management has tried and continues to try to adjust the
product mix and pricing philosophy in an attempt to stimulate sales. For fiscal
1997 the Company will introduce plus sizes into approximately one-third of the
chain. In fiscal 1996 the Company introduced shoes into 200 of its locations in
an attempt to generate new business and multiple sales. The addition of shoes
added approximately $4,600,000 to sales for fiscal 1996. In August 1993, the
Company introduced its private label credit card as a means of attempting to
stimulate sales. The credit card also serves as a vehicle for direct mail
contact with the customer. In fiscal 1997 the Company will assess the viability
of this program.

Net loss increased $1,653,000 (60.8%) from fiscal 1995 to 1996 and net
income decreased $7,865,000 (152.8%) from fiscal 1994 to fiscal 1995. As a
percentage of net sales, net (loss) income was (2.5%) in fiscal 1996, (1.3%) in
fiscal 1995 and 2.3% in fiscal 1994. The decrease in fiscal 1996 was primarily
attributable to the decrease in total sales, as discussed above. The decrease in
fiscal 1995 was also the result of decreased margins resulting from increased
competitive pressures. During fiscal 1996 margins increased slightly compared to
a decrease in margins during fiscal 1995 and a small increase in margins during
fiscal 1994. Sales and margins at these levels are insufficient to cover fixed
overhead. The net loss for fiscal 1995 was partially offset (to the extent of
$600,000) by refunds of insurance premiums received during the quarter ended
April 30, 1994. The decrease in fiscal 1994 was primarily attributable to the
continued lack of consumer confidence and increased expenses as a percentage of
sales. During the periods reported, comparable store sales decreased as noted in
the table above. The primary reason for the decreases in comparable store sales
was customer resistance to product and pricing and a lack of fashion direction
in the women's specialty apparel industry. The trend toward lower sales has
continued into the first quarter of fiscal 1997. The trend toward lower
comparable store sales has continued at a decreasing rate into the first quarter
of fiscal 1997.

Cost of sales, including buying and occupancy costs, decreased
$21,810,000 (13.5%) from fiscal 1995 to 1996, and decreased $4,570,000 (2.7%)
from fiscal 1994 to 1995. The decrease in cost of sales, buying and occupancy
costs was principally due to a decline in average net sales per store and a
decline in the average number of stores in operation during the periods. As a
percentage of net sales, these costs were 80.8% during fiscal 1996, 79.8% during
fiscal 1995, and 75.3% during fiscal 1994. For fiscal 1996 the decreased cost of
sales percentage resulted from the decreased need to markdown inventory as a
result of lower inventory levels. For fiscal 1995, the increased cost of sales
percentage resulted principally from higher promotional activity as a result of
increased competitive pressures. Buying and occupancy costs were 21.8%, 19.7%
and 18.0% of sales for the fiscal years 1996, 1995 and 1994, respectively. These
percentage increases resulted principally from decreased sales during the
periods.

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<PAGE>

The inventory turn over rate was approximately 3.1 times during fiscal
year ended January 31, 1996 and 2.5 times during the fiscal year ended January
31, 1995.

Selling and administrative expenses decreased $4,310,000 (10.2%) from
fiscal 1995 to 1996, and $2,255,000 (5.1%) from fiscal 1994 to 1995. The
decrease in these expenses for fiscal 1996 and 1994 was mainly due to cost
controls. The decrease in selling and administrative expenses from fiscal 1994
to 1995 was due, in part, to approximately $600,000 of refunds received for
health and workers' compensation insurance as a result of favorable experience.
In addition the decrease in selling and administrative expenses from fiscal 1994
to 1995 was due to a decrease in the number of stores and a decrease in sales.
As a percentage of net sales, these expenses were 21.9% during fiscal 1996,
20.9% during fiscal 1995 and 20.2% during fiscal 1994. The percentage increases
in fiscal 1994, 1995 and 1996 were the result of sales for the period being
insufficient to cover fixed overhead.

The decrease in depreciation expense in fiscal 1996 is principally
attributed to the write-off of leasehold improvements of closed stores.

Liquidity and Capital Resources - Consolidated

During the past three fiscal years the Company funded internally all of
its operating needs, including capital expenditures for the opening of new
apparel stores, remodeling of existing apparel stores, the purchase of the book
business and its related net assets and the acquisition of treasury stock. Total
cash provided by operating activities, for the fiscal years ended January 31,
1996, 1995 and 1994, was $9,897,000, $65,000 and $4,894,000, respectively. For
fiscal 1996 and 1995, the net loss was offset by cash provided by operations as
a result of non-cash charges for depreciation and amortization and decreased
merchandise inventories. For fiscal 1994 cash provided by operating activities
was generated by net income and non-cash charges partially offset by an increase
in merchandise inventories.

Net cash used in investing activities was $5,347,000, $1,735,000 and
$928,000 for the fiscal years ended January 31, 1996, 1995 and 1994,
respectively. In October 1995, the Company acquired substantially all of the net
assets of the Atlantic Book chain for a purchase price of approximately
$4,468,000, which was funded from the Company's internal funds. During fiscal
1995 and 1994, these funds were principally used in the purchase of property,
plant and equipment, net of proceeds from the sale of investments. During fiscal
1995, the Company expended $2.6 million for property and equipment additions to
open 8 new stores and remodel existing stores. During fiscal 1994, the Company
expended $2.7 million for property and equipment additions to open 11 new stores
and remodel existing stores.

Net cash used in financing activities was $3,592,000, $19,334,000 and
$3,175,000 for the fiscal years 1996, 1995 and 1994, respectively. For the
fiscal year ended January 31, 1995, these funds were used for the purchase of
treasury stock and the payment of dividends on preferred and common stock. On
April 4, 1994, the Company purchased the 2,761,800 shares of its common stock
owned by Petrie Stores Corporation at a cash price of $6.05 per share, for a
total cash outlay of approximately $16,800,000, including transaction costs.
That price represented a substantial discount from book value of $6.98 per
share. The purchase price was funded entirely from a portion of the Company's
short-term investments. For the fiscal years ended January 31, 1996 and 1994,
these funds were also used for the payment of dividends on preferred and common
stock.

-15-
<PAGE>

As of January 31, 1996, the Company had cash and cash equivalents of
$51,569,000 compared with $50,610,000 at January 31, 1995 and $71,614,000 at
January 31, 1994. Since fiscal 1993, the Company has trended toward lower sales
and since fiscal 1991 the Company has trended toward lower earnings and the
trend toward lower sales is continuing into the first quarter of fiscal 1997.
The Company plans to open a plus sized operation during the first quarter of
fiscal 1997 in approximately one-third of its stores. This will require the
hiring of a buying staff, the remodeling of certain locations, and the
purchasing of inventory. The Company will need to rebuild inventory levels
across its apparel chains after managing those levels down during fiscal 1996.
Other than these items there are no known other trends or commitments, events or
other uncertainties that are reasonably likely to result in the Company's
liquidity increasing or decreasing in any material way. The Company believes
that internally generated funds will be sufficient to meet its anticipated
capital expenditures, none of which are material, and current operating needs.

Income Taxes

The effective income tax (benefit) rate for fiscal 1996, 1995 and 1994
was (32.1%), (41.1%) and 30.4%, respectively. The effective tax rate benefit for
fiscal 1996 is lower than the statutory rate primarily as the result of state
income tax expense. The effective tax rate for fiscal 1995 is higher than the
statutory rate primarily as the result of tax-free interest income. The impact
of adopting SFAS No. 109 was not material to the fiscal 1995 or 1996 financial
statements.

Inflation

Inflation has had little impact on the operating results of the Company
since inflation rates are relatively low and inventory turns are frequent.
Inflation has had no meaningful effect on the other assets of the Company.

Seasonal Nature of Operations

Approximately 54% and (6%) of the Company's net sales and net (loss)
income, respectively, for fiscal 1996 occurred during the last six months as
compared to 55% and (4%) in the prior year. The last six months include the
Back-to-School and Christmas selling seasons. See "Quarterly Financial
Information (Unaudited)", and the preceding discussion on "Results of
Operations".

-16-
<PAGE>

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Deb Shops, Inc.
(a Pennsylvania corporation) and subsidiaries as of January 31, 1996 and 1995,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended January 31, 1996.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Deb
Shops, Inc. and subsidiaries as of January 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1996 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Philadelphia, PA
February 28, 1996

-17-
<PAGE>

Consolidated Statements of Operations

<TABLE>
<CAPTION>
Year Ended January 31,
-----------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $176,733,372 $202,937,909 $221,070,492
Other income, principally
interest 1,684,560 843,721 1,549,030
------------ ------------- ------------
178,417,932 203,781,630 222,619,522
------------ ------------- ------------

Costs and Expenses
Cost of sales, including buying
and occupancy costs 142,347,035 161,999,660 166,569,448
Selling and administrative 38,643,256 42,314,134 44,569,295
Depreciation and amortization 3,652,046 4,086,707 4,084,283
------------ ------------- ------------
184,642,337 208,400,501 215,223,026
------------ ------------- ------------
(Loss) Income Before Income Taxes (6,224,405) (4,618,871) 7,396,496
Income tax (benefit) provision (2,000,000) (1,900,000) 2,250,000
------------ ------------- ------------
Net (Loss) Income ($ 4,224,405) ($ 2,718,871) $ 5,146,496
============= ============= ============
Net (Loss) Income Per Common Share ($ .33) ($ .21) $ .33
============= ============= ============
Weighted Average Number of Common
Shares Outstanding 12,845,316 13,268,236 15,594,362
============ ============= ============
</TABLE>

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

-18-
<PAGE>

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
---------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $51,569,038 $50,610,195
Merchandise inventories 16,655,946 28,576,374
Prepaid expenses and other 3,890,710 3,920,716
Current deferred income taxes 949,128 1,196,129
------------ ------------
Total current assets 73,064,822 84,303,414
------------ ------------
Property, Plant and Equipment - at cost
Building and improvements 1,982,000 1,982,000
Leasehold improvements 29,611,550 31,198,281
Furniture and equipment 16,135,884 16,647,563
------------ ------------
47,729,434 49,827,844

Less accumulated depreciation and amortization 30,573,512 29,762,281
------------ ------------
17,155,922 20,065,563
------------ ------------
Other Assets
Goodwill, net of accumulated amortization of $71,412 3,146,993 --
Long term deferred income taxes 1,062,212 665,211
Other 1,167,514 1,167,514
------------ ------------
Total other assets 5,376,719 1,832,725
------------ ------------
$ 95,597,463 $106,201,702
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 8,585,210 $11,663,983
Accrued expenses 4,532,801 5,114,260
------------ ------------
Total current liabilities 13,118,011 16,778,243
------------ ------------
Capital Lease Obligation 1,986,267 2,040,408
------------ ------------
Commitments (Notes E and H)
Shareholders' Equity
Series A Preferred stock, par value $1.00 a share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares,
liquidation value $460,000 460 460
Common stock, par value $.01 a share:
Authorized - 25,000,000 shares
Issued shares-1996: 15,688,290; 1995: 15,688,290 156,883 156,883
Additional paid-in capital 5,541,944 5,541,944
Retained earnings 92,370,321 99,218,862
------------ ------------
98,069,608 104,918,149

Less common treasury shares, at cost -
1996: 2,843,610; 1995: 2,835,345 17,576,423 17,535,098
------------ ------------
80,493,185 87,383,051
------------ ------------
$ 95,597,463 $106,201,702
============ ============
</TABLE>

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

-19-
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- -------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1993 460 $460 15,688,290 $156,883
---- ---- ---------- --------
Exercise of stock options
Balance January 31, 1994 460 460 15,688,290 156,883
---- ---- ---------- --------
Exercise of stock options
Balance January 31, 1995 460 460 15,688,290 156,883
---- ---- ---------- --------
Exercise of stock options
Balance January 31, 1996 $460 $460 15,688,290 $156,883
==== ==== ========== ========
</TABLE>

<TABLE>
<CAPTION>
Additional
Paid-In Retained Treasury
Capital Earnings Stock
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance January 31, 1993 $5,781,244 $102,590,839 $ 1,183,373
Net income -- 5,146,496 --
Dividends on preferred stock ($120 per share) -- (55,200) --
Dividends on common stock ($.20 per share) -- (3,119,613) --
Issuance of restricted incentive stock, net (114,500) -- (185,405)
---------- ------------ -----------

Balance January 31, 1994 5,666,744 104,562,522 997,968
Net (loss) -- (2,718,871) --
Dividends on preferred stock ($120 per share) -- (55,200) --
Dividends on common stock ($.20 per share) -- (2,569,589) --
Issuance of restricted incentive stock, net (124,800) -- (171,760)
Purchase of 2,761,800 shares of common stock -- -- 16,708,890
---------- ------------ -----------

Balance January 31, 1995 5,541,944 99,218,862 17,535,098
Net (loss) -- (4,224,405) --
Dividends on preferred stock ($120 per share) -- (55,200) --
Dividends on common stock ($.20 per share) -- (2,568,936) --
Acquisition of treasury stock -- -- 41,325
---------- ----------- -----------

Balance January 31, 1996 $5,541,944 $ 92,370,321 $17,576,423
========== ============ ===========
</TABLE>

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

-20-
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ($ 4,224,405) ($ 2,718,871) $ 5,146,496
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 3,652,046 4,086,707 4,084,283
Issuance of restricted incentive stock, net (41,325) 46,960 70,905
Gain on disposition of investments -- (17,202) --
Deferred income tax benefit (provision) (150,000) 297,789 (74,218)
Loss on retirement of property, plant
and equipment 947,608 835,394 678,908
Change in assets and liabilities:
Decrease (increase) in merchandise inventories 14,337,455 4,196,711 (5,138,950)
Decrease (increase) in prepaid expenses and other 162,696 (1,938,103) 475,778
(Decrease) increase in trade accounts payable (4,108,742) (1,884,985) 1,056,393
(Decrease) in accrued expenses (678,192) (4,954) (883,929)
(Decrease) in income taxes -- (2,834,878) (521,225)
------------ ------------ ------------
Net cash provided by operating activities 9,897,141 64,568 4,894,441
------------ ------------ ------------

Cash flows from investing activities:
Purchase of business and related net assets,
net of cash acquired (Note C) (4,468,016) -- --
Purchase of property, plant and equipment,net (878,590) (2,609,769) (2,669,050)
Proceeds from sale of investments -- 874,874 1,741,500
------------ ------------ ------------
Net cash used in investing activities (5,346,606) (1,734,895) (927,550)
------------ ------------ ------------

Cash flows from financing activities:
Preferred stock cash dividends paid (55,200) (55,200) (55,200)
Common stock cash dividends paid (2,568,936) (2,569,589) (3,119,613)
Repurchase of treasury stock -- (16,708,890) --
Repayment of notes payable (913,415) -- --
Principal payment under capital lease
obligation (54,141) -- --
------------ ------------ ------------
Net cash used in financing activities (3,591,692) (19,333,679) (3,174,813)
------------ ------------ ------------

Increase (decrease) in cash and cash
equivalents 958,843 (21,004,006) 792,078
Cash and cash equivalents at beginning of
year 50,610,195 71,614,201 70,822,123
------------ ------------ ------------
Cash and cash equivalents at end of year $ 51,569,038 $ 50,610,195 $ 71,614,201
============ ============ ============

Supplemental disclosures of cash flow information:
Cash paid (refunded) during
the year for:
Interest on capital lease obligation $ 420,000 $ 444,000 $ 464,000
Income taxes, net ($ 1,441,444) $ 2,602,263 $ 2,707,059
</TABLE>

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

-21-
<PAGE>

DEB SHOPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- - A -SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

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

Background: The Company retails moderately priced fashion apparel for junior
sized females and males through 308 stores. The Company's stores are located in
regional malls and strip centers principally located in the east and mid-western
regions of the country. The Company also operates a chain of 14 book stores
located principally in Pennsylvania, New Jersey and Delaware.

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

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

Accounting for Long-Lived Assets: In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
(SFAS No. 121), which established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company is required to adopt
SFAS No. 121 effective February 1, 1996. The adoption of SFAS No. 121 is not
expected to have a material effect on the Company's financial condition or
results of operations.

Income Taxes: The liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that are expected
to be in effect when the differences reverse. Deferred income taxes result
principally from differences in the timing of recognition of overhead in
inventory, deductibility of certain liabilities and depreciation expense.

-22-
<PAGE>

Property, Plant and Equipment: The provisions for depreciation and amortization
are computed using the straight-line method based upon estimated useful lives of
the assets. Leasehold improvements are amortized over the initial term of the
lease. Furniture and equipment is depreciated over seven years or the lease
term, whichever is less. Gain or loss on disposition of property, plant and
equipment is included in other income.

Cost in Excess of Net Assets Acquired (Goodwill): The Company amortizes costs in
excess of fair market value of net assets of businesses acquired using the
straight-line method over a period of fifteen years. Accumulated amortization
was $71,412 at January 31, 1996. The Company evaluates whether changes have
occurred that would require revision of the remaining estimated useful life of
the assigned goodwill or render the goodwill not recoverable.

Net (Loss) Income Per Common Share: Net (loss) income per common share and all
per share amounts are based upon the weighted average common shares outstanding
during each year including the dilutive effect of stock options and restricted
incentive stock.

Statements of Cash Flows: The Company considers all highly liquid investments
with an original maturity of less than three months to be cash equivalents.
Included in cash and cash equivalents at January 31, 1996 is $50,170,000 of
investments in money markets, mutual funds and municipal bonds. They are carried
at cost which approximates market.

- - B -INVESTMENTS

At January 31, 1994, the Company had investments in mutual funds of
$857,672. During the year ended January 31, 1995, all investments were sold.

- - C -ACQUISITION OF BUSINESS

In October 1995, the Company acquired substantially all of the assets
and liabilities of the companies doing business as Atlantic Books for $4,468,016
in cash. The purchase price was allocated to the fair market value of the assets
with $3,213,405 allocated to goodwill. The acquisition was accounted for under
the purchase method of accounting. The following table displays the assets
acquired and liabilities assumed as a result of this acquisition:

Merchandise inventories $2,417,027
Prepaid expenses and other 137,690
Property, plant and equipment 740,011
Goodwill 3,213,405
Trade accounts payable (1,029,969)
Accrued expenses (96,733)
Notes payable (913,415)
-----------
$4,468,016
==========

-23-
<PAGE>

- - D -INCOME TAXES

Income tax provision (benefit) consists of the following components:

Year Ended January 31,
-----------------------------------
1996 1995 1994
- ---------------------------------------------------------------------
Current:
Federal........................($2,150,000) ($1,850,000) $2,075,000
State.......................... 300,000 250,000 250,000
----------- ----------- ----------
(1,850,000) ( 1,600,000) 2,325,000
----------- ----------- ----------
Deferred:
Federal........................ (100,000) (250,000) (25,000)
State.......................... (50,000) (50,000) (50,000)
----------- ----------- ----------
(150,000) (300,000) (75,000)
----------- ----------- ----------
($2,000,000) ($1,900,000) $2,250,000
=========== =========== ==========

The tax benefits generated during fiscal years 1996 and 1995 will be
realized by carrying back the loss to income generated during previous years.
The refunds are included in prepaid expenses.

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

Year Ended January 31,
---------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------

Tax (benefit) at statutory rate.. ($2,116,000) ($1,570,000) $2,515,000
Tax-free income.................. (22,000) (441,000) (563,000)
State income taxes,
net of federal tax............. 165,000 132,000 132,000
Other............................ (27,000) (21,000) 166,000
----------- ------------- ----------
($2,000,000) ($1,900,000) $2,250,000
=========== =========== ==========

The deferred tax effect of temporary differences giving rise to the
Company's deferred tax assets are:

. January 31,
------------------------
1996 1995
- --------------------------------------------------------------------
Deferred Tax Asset

Uniform cost capitalization $ 272,000 $ 443,000
Capital lease obligation 412,000 423,000
Deferred rent 323,000 323,000
Depreciation 650,000 210,000
Accrued expenses 592,000 726,000
---------- -----------
$2,249,000 $2,125,000
Deferred Tax Liabilities
Prepaid Expenses (238,000) (264,000)
----------- -----------
$2,011,000 $1,861,000
=========== ===========

-24-
<PAGE>

- - E -LEASES

The Company leases all of its retail stores for periods ranging from
one to 25 years, including renewal options. In most instances, the Company pays
real estate taxes, insurance and maintenance costs on the leased properties and
contingent rentals based upon a percentage of sales. The warehouse and office
building occupied by the Company is leased from a partnership whose partners
include three of the Company's directors including the President and Executive
Vice President.

Under the terms of the warehouse and office building lease, the Company
is required to pay annual rentals as reflected under "Capital Lease" in the
lease table below. The lease term is 20 years and requires the Company to pay
all real estate taxes, utilities and maintenance costs. The warehouse and office
building lease has a net book value of $694,000 at January 31, 1996 and is
accounted for as a capital lease. Resulting asset amounts are included in
buildings and improvements and are depreciated over twenty years.

Interest expense related to the capital lease obligation amounted to
$420,000, $444,000 and $464,000 for the years ended January 31, 1996, 1995 and
1994, respectively, and is included in selling and administrative expense.

Future minimum rental commitments for all noncancellable leases at
January 31, 1996 are as follows:

Capital Operating
Lease Leases
- ----------------------------------------------------------------------
1997.................................... $ 550,000 $ 15,835,000
1998.................................... 550,000 14,759,000
1999.................................... 550,000 13,338,000
2000.................................... 550,000 10,896,000
2001.................................... 550,000 9,181,000
Thereafter.............................. 780,000 32,886,000
---------- ------------

Total minimum rental commitments........ 3,530,000 $ 96,895,000
============

Imputed interest........................ (1,543,733)
----------
Present value of net minimum
lease payments........................ $1,986,267
==========

Total rental expense under operating leases amounted to $19,042,814,
$20,003,352 and $20,290,486 in fiscal 1996, 1995 and 1994, respectively. Such
amounts include contingent rentals based upon a percentage of sales of $789,686,
$730,171, and $861,177 in fiscal 1996, 1995 and 1994, respectively.

-25-
<PAGE>

- - F -STOCK OPTION PLAN

In January, 1983, the Company adopted an Incentive Stock Option Plan.
This plan expired in January 1993. At its expiration there were 50,460 options
outstanding, all of which expired during fiscal 1994. Effective October 1995,
the Company adopted a new Incentive Stock Option Plan (the Plan), subject to
approval by the shareholders at the annual meeting to be held on May 22, 1996.
The Plan is administered by a Stock Option Committee designated by the Board of
Directors. Under the Plan, a maximum of 2,000,000 shares of the Company's common
stock, par value $.01 per share, may be issued by the Company and sold to
selected key employees on the basis of contribution to the operations of the
Company. The price payable for the shares of Common Stock under each stock
option will be fixed by the Committee at the time of grant, but will be no less
than 100% of the fair market value of the Company's common stock at the time the
stock option is granted. Options are exercisable commencing one year after the
date of grant, subject to such vesting requirements as the Committee may
specify. The granted options expire through January, 2001. During fiscal 1996,
the Company issued 355,000 options to purchase common stock at prices ranging
from $3.25 to $3.50 per share which were the fair market values on the dates of
grant, as summarized below:

Outstanding, beginning of year.................................... --
Granted during period (at $3.25 and $3.50 per share)..... 355,000
Canceled during period................................... --
Exercised during period.................................. --
--------
Outstanding, end of year
(at $3.25 and $3.50 per share)......................... 355,000
========

At January 31, 1996, there were 1,645,000 shares reserved for future
grant.

- - G -RESTRICTED STOCK INCENTIVE PLAN

Effective June 1, 1990, the Company adopted a Restricted Stock
Incentive Plan ("RSIP") administered by the Company's Stock Option Committee.
Under the RSIP a maximum 300,000 shares of the Company's Common Stock may be
awarded as bonuses to key employees. No more than 100,000 shares may be issued
under this plan during any calendar year. Upon grant, the shares shall be
registered in the name of the recipient who shall have the right to vote the
shares and receive cash dividends, but the right to receive the certificates and
retain the shares does not vest until the grantee has remained in the employ of
the Company for a period determined by the Stock Option Committee. At the time
of the vesting, a portion of the shares may be withheld to cover withholding
taxes due on the compensation income resulting from the grant. During fiscal
1996, 1995 and 1994, 8,265, 8,320 and 6,860 shares, respectively, of treasury
stock were withheld to cover withholding taxes. These have been included in the
acquisition of treasury stock and the issuance of restricted incentive stock,
net on the consolidated statements of shareholders' equity.

-26-
<PAGE>

In fiscal 1996 no shares were granted under the RSIP plan. During
fiscal 1995 and 1994, 20,000 shares were granted in each of the years under the
RSIP. Compensation expense in the years ended January 31, 1995 and 1994 was
$100,000 and $125,000, respectively. At January 31, 1996 there were 206,000
shares reserved for future grant.

- - H -COMMITMENTS

The Company has an unsecured line of credit aggregating $20,000,000 at
January 31, 1996. Of this amount, $5,020,000 was outstanding as letters of
credit for the purchase of inventory.

The Company entered into a five year agreement with a bank during
fiscal 1994 for the use of a private label credit card bearing the Company's
name. The Company pays a fee based on a percent of sales. Upon termination and
under certain circumstances, the Company may be liable for excess losses
incurred, as defined, on collection of the then outstanding receivables.

-27-
<PAGE>

Quarterly Financial Information
(Unaudited)
<TABLE>
<CAPTION>
Amounts in Thousands First Second Third Fourth
Except Per Share Data Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
1996 $39,101 $42,317 $41,672 $53,643
1995 $43,316 $47,294 $49,170 $63,158
Cost of sales, including
buying and occupancy costs
1996 $32,770 $34,612 $35,536 $39,429
1995 $35,100 $36,807 $40,572 $49,521
Net (loss) income
1996 ($ 2,299) ($ 1,652) ($ 2,793) $ 2,520
1995 ($ 1,605) ($ 1,002) ($ 2,313) $ 2,201
Net (loss) income per share
1996 ($ .18) ($ .13) ($ .22) $ .20
1995 ($ .11) ($ .08) ($ .18) $ .17
Cash dividends per share
1996 $ .05 $ .05 $ .05 $ .05
1995 $ .05 $ .05 $ .05 $ .05
</TABLE>

-28-
<PAGE>

Item 9. Disagreements on Accounting and Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

(a) Directors of the Registrant

The required information with respect to each director is contained in
the Company's Proxy Statement in connection with its Annual Meeting to
be held on May 22, 1996, which is incorporated in this Form 10-K Annual
Report by reference.

(b) Executive Officers of the Registrant

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

Marvin Rounick, President, Chief Executive Officer and a Director, and
Jack A. Rounick, a Director, are brothers.

(d) Other

There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any director or executive officer
during the past five years.

Item 11. Executive Compensation

The required information with respect to executive compensation is
contained in the Company's Proxy Statement in connection with its Annual Meeting
to be held on May 22, 1996, which is incorporated in this Form 10-K Annual
Report by reference.

Item 12. Security Ownership of Certain Beneficial Owners & Management

The required information with respect to security ownership of certain
beneficial owners and management is contained in the Company's Proxy Statement
in connection with its Annual Meeting to be held on May 22, 1996, which is
incorporated in this Form 10-K Annual Report by reference.

-29-
<PAGE>

Item 13. Certain Relationships and Related Transactions

The required information with respect to certain relationships and
related transactions is contained in the Company's Proxy Statement in connection
with its Annual Meeting to be held on May 22, 1996, which is incorporated in
this Form 10-K Annual Report by reference.

PART IV

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

Financial Statements and Financial Statement Schedules

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

Report of independent public accountants...... 17

Consolidated statements of operations for
the years ended January 31, 1996, January 31,
1995 and January 31, 1994..................... 18

Consolidated balance sheets as of January 31,
1996 and January 31, 1995..................... 19

Consolidated statements of shareholders'
equity for the years ended January 31, 1996,
January 31, 1995 and January 31, 1994......... 20

Consolidated statements of cash flows for the
years ended January 31, 1996, January 31, 1995
and January 31, 1994.......................... 21

Notes to consolidated financial statements.... 22-27

Selected quarterly financial data for
the years ended January 31, 1996 and
January 31, 1995.............................. 28

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

-30-
<PAGE>

EXHIBITS

Certain of the following exhibits have been filed with the Securities
and Exchange Commission pursuant to the requirements of the Acts administered by
the Commission. Such exhibits are identified by the references following the
listing of each such exhibit, and are incorporated herein by reference.

Exhibits identified with an asterisk below comprise executive
compensation plans and arrangements.

Exhibit No. Description of Document
- ----------- -----------------------
3-1 Restated Articles of Incorporation of the Company,
as amended through May 29, 1984 (1992 Form 10-K,
Exhibit 3-1)

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

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

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

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

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

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

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

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

4-1.7 * Amendment No. VII to Deb Shops, Inc. Restated
Savings and Protection Plan.

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

-31-
<PAGE>

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

10-1 Lease Agreement for property located at 9401
Blue Grass Road, Philadelphia, Pennsylvania,
19114 (Registration No. 2-82222, Exhibit 10-1)

10-8 Blue Grass Partnership Agreement dated June 15,
1982 (Registration No. 2-82222, Exhibit 10-8)

10-9 Guarantee by Deb Shops, Inc. of payment of
debt obligation of Blue Grass Partnership to
Philadelphia Industrial Development Corporation
Local Development Corporation dated December 16,
1982 (Registration No. 2-82222, Exhibit 10-9)

10-10 Acceptance by Deb Shops, Inc. dated June l8,
1982 to guarantee the $500,000 loan to Blue
Grass Partnership (Registration No. 2-82222,
Exhibit 10-10)

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

10-14.2 * Split Dollar Insurance Agreement dated July
31, 1987 between the Company and Jack A. Rounick
and Stuart Savett, Trustees under the Rounick
Family Irrevocable Insurance Trust dated October
27, 1986 (1993 Form 10-K, Exhibit 10-14.2)

10-14.3 * Collateral Assignment dated July 31, 1987
from Jack A. Rounick and Stuart Savett,
Trustees under the Rounick Family Irrevocable
Insurance Trust dated October 27, 1986, as
assignor, and the Company, as assignee
(1993 Form 10-K, Exhibit 10-14.3)

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

10-15.2 * Split Dollar Insurance Agreement dated July 31,
1987 between the Company and Barry H. Frank and
Robert Shein, Trustees under the Weiner Family
Irrevocable Insurance Trust dated October 27,
1986 (1993 Form 10-K, Exhibit 10-15.2)

10-15.3 * Collateral Assignment dated July 31, 1987 from Barry H.
Frank and Robert Shein, Trustees under the Weiner Family
Irrevocable Insurance Trust dated October 27, 1986, as
assignor, and the Company, as assignee (1993 Form 10-K,
Exhibit 10-15.3)

-32-
<PAGE>

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

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

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

10-19 * Deb Shops, Inc. Premium Conversion Plan

10-19.1 * Amendment No. I to Deb Shops, Inc. Premium Conversion
Plan

10-20 * Deb Shops, Inc. 1995 Incentive Stock Option Plan

10-21 * Employment Agreement dated December 1, 1995 between
the Company and Allan Laufgraben

10-22 * Agreement dated January 31, 1996 between the Company
and Barry Vesotsky

11 Computation of Primary Earnings Per Share

22 Subsidiaries of the Company

24-1 Consent of Arthur Andersen LLP

27 Financial Data Schedule

Reports on Form 8-K

There were no reports on Form 8-K for the quarter ended January 31,
1996.

-33-
<PAGE>

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City and County
of Philadelphia, Commonwealth of Pennsylvania, on April 26, 1996.

DEB SHOPS, INC.
(Registrant)

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

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

/s/ Marvin Rounick April 26, 1996
- -----------------------------------------
Marvin Rounick, President,
Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Warren Weiner April 26, 1996
- -----------------------------------------
Warren Weiner, Executive Vice President,
Secretary, Treasurer and Director

/s/ Jack Rounick April 26, 1996
- -----------------------------------------
Jack A. Rounick, Assistant Secretary
and Director

/s/ Paul Bachow April 26, 1996
- -----------------------------------------
Paul S. Bachow, Director

/s/ Barry Feinberg April 26, 1996
- -----------------------------------------
Barry H. Feinberg, Director

/s/ Barry Frank, Esq April 26, 1996
- -----------------------------------------
Barry H. Frank, Esq., Director

/s/ Lewis Lyons April 26, 1996
- -----------------------------------------
Lewis Lyons, Vice President, Finance,
Chief Financial Officer

/s/ Marvin Waxman April 26, 1996
- -----------------------------------------
Marvin Waxman, Controller

-34-

EXHIBIT 4-1.7

AMENDMENT VII

DEB SHOPS, INC.
RESTATED SAVINGS AND PROTECTION PLAN

DEB SHOPS, INC., hereby adopts this amendment to the DEB SHOPS, INC.
RESTATED SAVINGS AND PROTECTION PLAN.

1. Section 4.1 of the Plan is hereby amended in its entirety to read as follows;

"4.1 All individuals who were Employees of the Company on the Effective Date
of the Restated Plan and have completed the Eligibility Computation
Period or who were Participants in the Plan on the Effective Date of the
Restated Plan shall be Participants as of the Effective Date of the
Restated Plan. All individuals who were employees of the subsidiary
corporation, Books Management, Inc., as defined in Section 2.4, on
October 20, 1995, and during the preceding twelve (12) months completed
1,000 Hours of Service with Atlantic Book Management, Inc. or its
affiliates, shall be considered as having completed the Eligibility
Computation Period and shall be Participants as of October 20, 1995.
Except as provided in Section 4.3, each other Employee shall become a
Participant on the earlier of (a) the Anniversary Date after he
completes the Eligibility Computation Period, or (b) the last day of the
sixth month of the first Plan Year coincident with or next following the
date on which such Employee completes the Eligibility Computation
Period. For employees of Books Management, Inc., the Eligibility
Computation Period shall include any service with Atlantic Book
Management, Inc., or any affiliated entity, from date of employment and
prior to October 20, 1995."

2. The preceding amendment is effective as of October 20, 1995.

IN WITNESS WHEREOF, and as evidence of the adoption of this amendment,
the Employer has caused the same to be executed by its duly authorized officers
this 20th day of October, 1995.

DEB SHOPS, INC.

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

Attest: /s/ Warren Weiner
-----------------------------------------
Secretary, Warren Weiner

<PAGE>

EXHIBIT 10-19
-------------

DEB SHOPS INC.
PREMIUM CONVERSION PLAN

Effective Date: April 1, 1993
<PAGE>

PURPOSE

The Deb Shops Inc. Premium Conversion Plan ("Plan") is adopted by Deb Shops Inc.
effective April 1, 1993. The purpose of the Plan is to allow Employees of Deb
Shops Inc. and other Participating Employers, to choose between cash
compensation and health care coverage under medical plans(s) sponsored by Deb
Shops Inc. Deb Shops Inc. intends that the Plan qualify as a "cafeteria plan"
under section 125 of the Internal Revenue Code of 1986, as amended, and that the
Benefit Program that an Employee elects to receive under the Plan be eligible
for exclusion from the Employee's income for federal income tax purposes.

Although this Plan has been reduced to writing in order to comply with section
125 of the Code, the Plan shall also serve as an amendment to each of the health
plans described in Schedule A affected by its provisions in order to permit the
benefits of this Plan to be fully implemented.
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C> <C>
1 DEFINITIONS................................................... 1

2 PARTICIPATION IN THE PLAN..................................... 3

2.1 Commencement of Participation........................... 3
2.2 Procedure for and Effect of Participation............... 3
2.3 Cessation of Participation.............................. 3
2.4 Recommencement of Participation......................... 3

3 BENEFITS...................................................... 4

3.1 Benefit Credits......................................... 4
3.2 Election of Benefits.................................... 4
3.3 Provision of Benefits................................... 4
3.4 Employee Contributions.................................. 4
3.5 Revocation and Modification of Benefit Election......... 5
3.6 Nondiscrimination....................................... 5
3.7 Insurance Contracts..................................... 5
3.8 Premium Expense......................................... 5

4 PLAN ADMINISTRATOR............................................ 6

4.1 Plan Administrator...................................... 6
4.2 Named Fiduciary......................................... 6
4.3 Rules of Administration................................. 6
4.4 Services to the Plan.................................... 6
4.5 Funding Policy.......................................... 6
4.6 Claims Procedure........................................ 6
4.7 Nondiscriminatory Operation............................. 7

5 EMPLOYEE CONTRIBUTIONS........................................ 8
5.1 Funding................................................. 8
5.2 Execution of Agreements................................. 8
5.3 Amount of Compensation Reduction........................ 8
5.4 Crediting of Compensation Reduction Amounts............. 8

7 CONTINUATION OF COVERAGE...................................... 9
7.1 In General.............................................. 9
7.2 Continuation of Coverage................................ 9
7.3 Type of Coverage........................................ 9
7.4 Coverage Period......................................... 9
7.5 Contribution............................................ 10
7.6 Notification by Qualified Beneficiary................... 11
</TABLE>
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C> <C>
7.7 Notification to Qualified Beneficiary.................. 11
7.8 Definitions............................................ 11

8 MISCELLANEOUS................................................ 13

8.1 Amendment and Termination.............................. 13
8.2 Effect of Plan on Employment........................... 13
8.3 Alienation of Benefits................................. 13
8.4 Facility of Payment.................................... 13
8.5 Proof of Claim......................................... 13
8.6 Status of Benefits..................................... 13
8.7 Applicable Law......................................... 13
8.8 Source of Benefits..................................... 13
8.9 No Reversion to Employer............................... 14
8.10 Severability........................................... 14
8.11 Heirs and Assigns...................................... 14
8.12 Headings and Captions.................................. 14
8.13 Information to be Furnished............................ 14
</TABLE>
<PAGE>

SECTION 1

DEFINITIONS

The words and phrases as used herein shall have the following meanings, unless a
different meaning is plainly required by the context, and pronouns shall be
interpreted so that the masculine pronoun shall include the feminine and the
singular shall include the plural.

1.1 "Adoption Agreement" means the written agreement by which an Affiliated
Company adopts this Plan.

1.2 "Affiliated Company" means:

A. any corporation which is a member of a controlled group of
corporations with the Employer within the meaning of section 1563(a)
of the Code, determined without regard to sections 1563(a)(4) and
(e)(3)(C);

B. all trades or businesses under common control with the Employer
within the meaning of section 414(c) of the Code;

C. all trades or businesses which are included with the Employer in an
affiliated service group within the meaning of section 414(m) of the
Code; or

D. any other entity required to be aggregated with the Employer
pursuant to regulations under section 414(o) of the Code.

1.3 "Beneficiary" means the person, persons or trust designated by written
revocable designation filed with the Plan Administrator by the
Participant to receive payments under this Plan, including the
Participant and any dependents of a Participant.

1.4 "Benefit Credits" means the amount set aside for a Benefit Program under
Section 3.1 and credited to the Participant's Premium Conversion Account.

1.5 "Benefit Program" means a health care coverage option, available from
time to time under the Plan, as set forth in Schedule A hereto.

1.6 "Code" means the Internal Revenue Code of 1986 as amended, and the same
as may be amended from time to time.

1.7 "Committee" means the ESP Committee established by the Employer.

1.8 "Compensation Reduction Agreement" means a voluntary agreement whereby an
Employee agrees to reduce his compensation for the forthcoming Plan Year
(or, if the agreement becomes effective after the beginning of the Plan
Year, for the balance of the Plan Year) for purposes of obtaining the
Benefit Program offered by the Plan.

1.9 "Effective Date" means April 1, 1993.

1
<PAGE>

1.10 "Eligible Employees" means any Employee who is regularly scheduled to
work 30 or more hours per week for a Participating Employer.

1.11 "Employee" means any person who is engaged in the conduct of the business
of a Participating Employer, excluding independent contractors.

1.12 "Employer" means Deb Shops Inc. and any other business organization which
succeeds to its business and elects to continue this Plan.

1.13 "Enrollment Period" means the calendar month preceding the beginning of
any Plan Year.

1.14 "Entry Date" means for salaried employees, Assistant Managers, and union
employees the first day of the month coinciding with or following 90 days
of continuous employment as an Eligible Employee. For all other employees
the Entry Date is the first day of the month coinciding with or following
180 days of continuous employment as an Eligible Employee.

1.15 "ERISA" means the Employee Retirement Income Security Act of 1974, and
the same as may be amended from time to time.

1.16 "Highly Compensated Employee" means any Employee defined as such in
section 414(q) of the Code.

1.17 "Key Employee" means any Employee defined as such in section 416(i)(l) of
the Code.

1.18 "Participant" means any Eligible Employee who has met the conditions for
participation set forth in Section 2 and Section 1.10 above.

1.19 "Participating Employer" means Deb Shops Inc. and any Affiliated Company
which adopts this Plan with the consent of the Board. As of the Effective
Date, the Employer is the only Participating Employer.

1.20 "Plan" means the Deb Shops Inc. Premium Conversion Plan which is
described herein and in any applicable Adoption Agreement, and which is
intended to constitute a separate, written Plan for the exclusive benefit
of Eligible Employees.

1.21 "Plan Sponsor" means Deb Shops Inc.

1.22 "Plan Year" means each twelve-month period commencing April 1 and ending
on the subsequent March 31.

1.23 "Premium Conversion Account" means the account established in each
Participant's name as provided under Section 3.1 and which is used to
record the allocation of Benefit Credits for the expenditure of the
Benefit Program elected by a Participant.

1.24 "Premium Expense" means the expense identified with the Benefit Program
elected by a Participant in accordance with Section 3.2.

2
<PAGE>

SECTION 2

PARTICIPATION IN THE PLAN

2.1 Commencement of Participation. Each Eligible Employee may elect to
participate in the Plan as of the relevant Entry Date as set forth in
Section 1.14.

2.2 Procedure for and Effect of Participation. An Eligible Employee may
become a Participant in the Plan by executing a Compensation Reduction
Agreement under which the Employee agrees to reduce his Compensation for
the forthcoming Plan Year (or, if such Compensation Reduction Agreement
becomes effective after the beginning of the Plan Year, for the balance
of the Plan Year). The Compensation Reduction Agreement shall be governed
by Section 5 hereof. By becoming a Participant, each individual shall for
all purposes be deemed conclusively to have consented to the provisions
of the Plan and all amendments thereto.

2.3 Cessation of Participation. A Participant will cease to be a Participant
as of the earliest of:

A. the date on which the Plan terminates;

B. the date on which he ceases to be an Eligible Employee;

C. the date on which he revokes his election and elects not to
participate in a Benefit Program, on account of and consistent with
a change in family status in accordance with Section 3.5; or

D. the date on which he fails to make a contribution in accordance with
Section 3.4.

Notwithstanding the foregoing, a former Eligible Employee who is absent
by reason of sickness, disability, or other authorized leave of absence
may continue as a Participant for so long as such authorized absence
continues in accordance with such rules and regulations as the
Participating Employer may direct.

2.4 Recommencement of Participation. A former active Participant who revokes
his election at the time of his termination and is rehired may recommence
participation in the Plan upon resatisfying the eligibility requirements,
disregarding his prior employment. However, any former active Participant
shall be prohibited from making any change from his prior election in the
Plan Year for which his revocation of election was effective, except as
provided in Section 3.5.

3
<PAGE>

SECTION 3

BENEFITS

3.1 Benefit Credits. Upon proper election by a Participant in accordance with
Section 3.2 herein, there shall be credited to each Participant's Premium
Conversion Account any Benefit Credits that correspond to the
Participant's Compensation Reduction Agreement determined in accordance
with Section 5 hereof. Such Benefit Credits shall not exceed the Premium
Expense of the Benefit Program elected, set forth in Schedule A attached
hereto, as it may be revised by the Employer from time to time. The
Participant's Benefit Credits shall be credited as and when such sum is
redirected from the Participant's compensation pursuant to the
Compensation Reduction Agreement then in effect. The Benefit Credits
shall be used to pay all or part of the Premium Expense of the Benefit
Program that the Participant has designated pursuant to Section 3.2. The
Premium Expense paid on behalf of any Participant shall be a charge to
the balance of his Premium Conversion Account.

3.2 Election of Benefits. Each Eligible Employee shall submit to the
Employer, before the close of the Enrollment Period for each Plan Year, a
written statement identifying the Benefit Program to be provided by the
Employer to or on behalf of the Eligible Employee. Each election under
this Section 3.2 may be modified by the Employer to the extent required
to enable the Plan, and payments hereunder, to satisfy the requirements
of section 125 of the Code. If an Eligible Employee separates from
service with a Participating Employer during a period in which he is
covered under a Benefit Program, the Employer may terminate the remaining
portion of Benefit Program coverage provided by the Plan. If an Eligible
Employee fails to submit a written statement identifying the Benefit
Program to be provided by the Employer, Section 5.2 will apply.

3.3 Provision of Benefits. The Participating Employer shall provide the
Benefit Program the Participant has elected under the Plan. The benefits
provided thereunder shall be subject further to the provisions of any
plan, contract, or other arrangement setting forth the further terms and
conditions of the Benefit Program, and the terms of each Participating
Employer's plan, contract or other arrangement, under which benefits
provided are incorporated by reference in this Plan.

3.4 Employee Contributions. If a Participant does not have sufficient Benefit
Credits to pay for the Benefit Program elected, the Participating
Employer is authorized to withhold the additional amounts from a
Participant's pay on a post-tax basis to the extent required for said
Benefit Program.

Participants are required to increase or decrease their payments under
the terms of the Plan and as required by the Plan Administrator, if there
is an increase or decrease in the premium payments required by an
independent, third party provider in order to maintain a Benefit Program.

Notwithstanding the foregoing, a Benefit Program shall cease to be
provided to a Participant if said Participant fails to make a
contribution required under the terms of the Plan.

4
<PAGE>

3.5 Revocation and Modification of Benefit Election. Once an Eligible
Employee has elected Benefits under the Plan and the Plan Year has begun,
he may not modify or revoke his election of Benefits, except on account
of, and consistent with, a change in family status such as marriage,
divorce, or death of a spouse or child, birth or adoption of a child, or
a significant change in the health coverage of a Participant or his
spouse attributable to his spouse's employment.

Before the Plan Year has begun, a Participant may modify or revoke his
designation of Benefits to the extent that the Employer may provide. Any
new election under this Section 3.5 shall be effective at such time as
the Employer shall prescribe, but not later than the first pay period
beginning after the modified election form is completed and returned to
the Employer.

Notwithstanding the preceding paragraph, a Participant may modify his
election to a Benefit Program which provides benefits through the
Participating Employer's health plan or an HMO option sponsored by a
Participating Employer other than during this Plan's Enrollment Period,
if such an election is due either to the relocation of the Participant
outside of the HMO's service area, or the HMO's cessation of service due
to its insolvency.

If an election results in a changed Premium Expense, then such change may
be reflected in that Participant's Compensation Reduction Agreement under
this Plan. The Participant must complete and submit to the Plan
Administrator a new Compensation Reduction Agreement reflecting his
revised election within 31 days of the election in order for the changed
Premium Expense to take effect under this Plan.

3.6 Nondiscrimination. Contributions and benefits under the Plan shall not
discriminate in favor of Highly Compensated Employees; nor shall the
aggregate cost of the Benefit Programs provided to Key Employees exceed
25% of the aggregate of such cost for the Benefit Programs provided to
all Employees under the Plan. The Employer may limit or deny any
Employee's Compensation Reduction Agreement to the extent necessary to
avoid any such discrimination.

3.7 Insurance Contracts. Any dividends or retroactive rates or other refunds
which may become payable under any insurance, health care service
contracts or Benefit Programs due to actuarial error in rate calculation
shall be the exclusive property of and shall be retained by a
Participating Employer.

3.8 Premium Expense. The Premium Expense of each Benefit Program shall be
determined in a uniform manner by the Participating Employer subject to
approval by the Employer. Such premium expenses are subject to change at
the discretion of the Employer for any future Plan Year for current
Participants, and at any time for new Participants.

5
<PAGE>

SECTION 4

PLAN ADMINISTRATOR

4.1 Plan Administrator. The Employer shall be the Plan Administrator for
purposes of ERISA.

4.2 Named Fiduciary. The Employer shall be the named fiduciary responsible
for administration of the Plan. The Employer may, however, delegate any
of its powers or duties under the Plan in writing to any person or
entity. The delegate shall become the fiduciary for only that part of the
administration which has been delegated by the Employer and any
references to the Employer shall instead apply to the delegate.

However, if the Employer assigns any of the Employer's responsibility to
an Employee, it will not be considered a delegation of Employer
responsibility but rather how the Employer internally has assigned
responsibility.

4.3 Rules of Administration. The Plan Administrator shall adopt such rules
for administration of the Plan as it considers desirable, provided they
do not conflict with the Plan; and may construe the Plan, correct
defects, supply omissions and reconcile inconsistencies to the extent
necessary to effectuate the Plan, and such action shall be conclusive.
Records of administration of the Plan shall be kept by the Plan
Administrator, and Participants and their Beneficiaries may examine
records pertaining directly to themselves.

4.4 Services to the Plan. The Plan Administrator may contract for legal,
actuarial, investment advisory, medical accounting, clerical and other
services to carry out the Plan. The costs of such services and other
administrative expenses shall be paid by the Employer, unless paid by the
Plan.

4.5 Funding Policy. The Plan Administrator shall annually review and
determine the funding policy of the Plan, with the advice of such experts
as the Plan Administrator deems appropriate.

4.6 Claims Procedure.

A. To receive benefits under the Plan, a Participant must submit a
written claim for benefits to the Plan Administrator. For purposes
of the claims procedure, the Employer has assigned the Office
Manager of Deb Shops Inc. to be the Plan Administrator.

The Plan Administrator will review the claim and will advise the
Participant of any Benefit to which he is entitled. If a Participant
believes he has not been reimbursed in accordance with the Plan or
has not been advised of his Benefits, he may submit a written
request to the Plan Administrator to provide either an explanation
of how Benefits are reimbursed or further information of his
Benefits. The Plan Administrator must respond to such a request
within a reasonable time.

Additionally, the Plan Administrator will provide to every claimant,
who is denied a claim for Benefits, a written notice stating in a
format determined to be understood by the claimant:

6
<PAGE>

(i) the specific reason or reasons for the denial;

(ii) specific reference to pertinent Plan provisions on which the
denial is based;

(iii) a description of any additional material or information
necessary for the claimant to perfect the claim; and

(iv) an explanation of the claim review procedure set forth in
paragraph B., below.

B. Within 60 days of receipt by a claimant of a notice denying a claim
under paragraph A., the claimant or his duly authorized
representative may request in writing a full and fair review of the
claim by the Plan Administrator, or by an appeals committee
appointed by the Employer for that purpose ("Committee"). The Plan
Administrator may extend the 60-day period where the nature of the
benefit involved or other attendant circumstances make such
extension appropriate. In connection with such review, the claimant
or his duly authorized representative may review pertinent documents
and may submit issues and comments in writing. The Plan
Administrator or Committee shall make a decision promptly, and not
later than 60 days after the Plan Administrator's receipt of a
request for review, unless special circumstances (such as the need
to hold a hearing, if the Committee deems one necessary) require an
extension of time for processing. In that case a decision shall be
rendered as soon as possible, but not later than 120 days after
receipt of a request for review. The decision on review shall be in
writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by the claimant, and
specific references to the pertinent Plan provisions on which the
decision is based.

4.7 Nondiscriminatory Operation. All rules, decisions and designations by the
Employer and the Plan Administrator or Committee under the Plan shall be
made in a nondiscriminatory manner, and persons similarly situated shall
be treated alike.

7
<PAGE>

SECTION 5

EMPLOYEE CONTRIBUTIONS

5.1 Funding. The benefits provided herein shall be paid by the Plan
Administrator; provided, however, that the payments under the Plan shall
be limited to those amounts by which Participant designates to reduce his
compensation pursuant to his Compensation Reduction Agreement.

5.2 Execution of Agreements. All Compensation Reduction Agreements entered
into by Participants in the Plan shall be executed before the close of
the Enrollment Period for the Plan Year for which such Compensation
Reduction Agreements will be effective or, in the case of Participants
who were not eligible to participate in the Plan at the beginning of the
Plan Year, before the first day of the pay period after the date on which
they become eligible to participate in the Plan. Each Compensation
Reduction Agreement shall remain effective throughout the Plan Year
unless revoked or suspended by reason of any Participant's ceasing to be
an Eligible Employee or by reason of a family status change pursuant to
Section 3.5. Any Participant who fails to execute an appropriate
Compensation Reduction Agreement during the Enrollment Period shall be
deemed to have maintained his prior year's election. Any newly Eligible
Employee who fails to execute an appropriate Compensation Reduction
Agreement at the time of commencement of participation in the Plan shall
be deemed to have elected cash compensation to the extent permissible.

5.3 Amount of Compensation Reduction. The compensation reduction amount shall
be specified by the Participant in the Compensation Reduction Agreement.
The compensation reduction amount shall be designated on a per pay basis.
In no event shall the designated compensation reduction exceed the
Premium Expense of the benefit selected by the Participant pursuant to
Section 3.2 hereof.

5.4 Crediting of Compensation Reduction Amounts. All compensation reduction
amounts shall be applied to reduce the Participant's compensation for
each pay period in as nearly equal amounts as the Employer deems
practicable, except as the Employer shall otherwise determine. The
compensation reduction amount shall be credited to the Participant's
Benefit Credits as of the end of the pay period to which such amount is
attributable; provided, however, that no person's compensation for any
pay period shall be reduced by reason of a Compensation Reduction
Agreement, nor shall any Benefit Credits be credited by reason of such
agreement, if such person is not an Eligible Employee or Participant on
the date as of which such compensation is otherwise payable.

8
<PAGE>

SECTION 6

CONTINUATION OF COVERAGE

6.1 In General. The following provisions shall apply to Benefits provided to
Eligible Employees and their Dependents under the Plan, but only to the
extent that the Benefits selected pertain to health care and medical
coverage. This coverage shall be continued pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L. 99-272)
Title X (COBRA).

6.2 Continuation of Coverage. Subject to Section 6.1 above, a Qualified
Beneficiary who would lose coverage under this Plan as a result of a
Qualifying Event is entitled to elect continuation coverage within the
election period under this Plan. Coverage under this provision is on a
contributory basis. No evidence of good health will be required.

Except as otherwise specified in an election, any election by a Qualified
Beneficiary who is a covered Employee or spouse of the covered Employee
will be deemed to include an election for continuation coverage under
this provision on behalf of any other Qualified Beneficiary who would
lose coverage by reason of a Qualifying Event.

If this Plan provides a choice among the types of coverage under this
Plan, each Qualified Beneficiary is entitled to make a separate selection
among such types of coverage (i.e. single, family, etc.).

6.3 Type of Coverage. Continuation coverage under this provision is coverage
which is identical to:

A. the coverage provided under this Plan to similarly situated
Beneficiaries with respect to whom a Qualifying Event has not
occurred as of the time coverage is being provided; and

B. who have elected the same coverage as was elected by the Qualified
Beneficiary.

If coverage under this Plan is modified for any group of similarly
situated Beneficiaries, the coverage shall also be modified in the same
manner for all Qualified Beneficiaries under this Plan in connection with
such group.

6.4 Coverage Period. The coverage under this provision will extend for at
least the period beginning on the date of a qualifying event and ending
not earlier than the earliest of the following:

A. in the case of a terminated Employee (except for gross misconduct)
or a covered Employee whose hours have been reduced, except as
provided in B. and C. below, and his covered Dependents, the date
which is 18 months after the Qualifying Event;

B. in the case of a Qualified Beneficiary disabled at the time of the
covered Employee's termination (except for gross misconduct) the
date which is 29 months after the Qualifying Event, provided the
Qualified Beneficiary provides the Plan Administrator with notice of

9
<PAGE>

Social Security disability determination within 60 days of the
disability determination and within 18 months of the Qualifying
Event;

C. in the case of a Qualifying Event which occurs during the 18 months
after the date that a covered Employee is terminated (except for
gross misconduct) or the date that a covered Employee's hours are
reduced, for the covered Dependents, the date which is 36 months
after the date that a covered Employee is terminated (except for
gross misconduct), or the date that a covered Employee's hours are
reduced;

D. in the case of a termination (except for gross misconduct) or
reduction in hours of a covered Employee and that Employee's
subsequent entitlement to Medicare while continuation coverage is in
force, for the covered dependents, the date which is 36 months from
the date of the initial Qualifying Event;

E. in the case of any Qualifying Event except as described in A., B.
and C. above, the date which is 36 months after the date of the
qualifying event;

F. the date on which the Employer ceases to provide any group health
plan coverage to any Employee;

G. the date on which the Qualified Beneficiary fails to make timely
payment of the required contribution pursuant to this provision;

H. the date on which the Qualified Beneficiary first becomes, after the
date of the election, covered under any other group health plan as
an Employee or Dependent, or otherwise becomes entitled to benefits
under Title XVIII of the Social Security Act (Medicare). However, if
the other group health plan has a preexisting condition limitation,
coverage under the Plan will not cease while such preexisting
condition limitation under the other group plan remains in effect.
In no instance will coverage continue beyond the coverage period set
forth in this Section 6.4.

6.5 Contribution.

A. A Qualified Beneficiary shall only be entitled to continuation
coverage provided such Qualified Beneficiary pays the applicable
premium required by Employer in full and in advance, except as
provided in B. below. Such premium shall not exceed the requirements
of applicable federal law. A Qualified Beneficiary may elect to pay
such premium in monthly installments.

B. Except as provided in C. below, the payment of any premium shall be
considered to be timely if made within 30 days after the date due,
or within such longer period of time as applies to or under this
Plan.

C. Notwithstanding A. and B. above if an election is made after a
Qualifying Event during the election period, this Plan will permit
payment of the required premium for continuation coverage during the
period preceding the election to be made within 45 days of the date
of the election and will require payment no later than the 46th day
from the date of the election.

10
<PAGE>

6.6 Notification by Qualified Beneficiary. Each covered Employee or Qualified
Beneficiary must notify the Plan Administrator of the occurrence of a
divorce or legal separation of the covered Employee from such covered
Employee's spouse, and/or the covered Employee's dependent child ceasing
to be a Dependent child under the terms of this Plan within 60 days after
the date of such occurrence. This 60-day time limit shall only apply to
those occurrences as described in this paragraph which occur after the
date of the enactment of the Tax Reform Act of 1986.

6.7 Notification to Qualified Beneficiary.

A. The Plan Administrator shall provide written notice to each covered
Employee and spouse of such covered Employee of his right to
continuation coverage under this provision as required by federal
law.

B. The Plan Administrator shall notify any Qualified Beneficiary of the
right to elect continuation coverage under this provision as
required by federal law. If the Qualifying Event is the divorce or
legal separation of the covered Employee from the covered Employee's
spouse or a dependent child ceasing to be a Dependent child under
the terms of this Plan, the Plan Administrator shall only be
required to notify a Qualified Beneficiary of his right to elect
continuation coverage if the covered Employee or the Qualified
Beneficiary notifies the Plan Administrator of such Qualifying Event
occurring after the date of the enactment of the Tax Reform Act of
1986 within 60 days after the date of such Qualifying Event.

C. Notification of the requirements of this provision to the spouse of
a covered Employee shall be treated as notification to all other
Qualified Beneficiaries residing with such spouse at the time
notification is made.

6.8 Definitions. The terms used in the text of this Section 6 are defined as
follows:

A. "Dependents" means an individual who meets the definition of
dependent under the Participating Employer health plan covering the
Qualified Beneficiary.

No person shall be considered a Dependent of more than one Employee.

If both an Employee and an Employee's spouse are employed by
Employer dependent children may be covered by either spouse, but not
by both.

B. "Election Period" means the 60-day period during which a Qualified
Beneficiary who would lose coverage as a result of a Qualifying
Event may elect continuation coverage. This 60-day period begins not
later than the date of termination of coverage as a result of a
Qualifying Event and ends not earlier than 60 days after the later
of such date of termination of coverage or the receipt of notice of
the right to elect continuation coverage under this Plan.

C. "Medicare" means the Health Insurance for the Aged and Disabled Act,
Title XVIII of Public Law 89-97, Social Security, as amended.

11
<PAGE>

D. "Qualified Beneficiary" means an individual who, on the day before
the Qualifying Event for a covered Employee, is a Beneficiary under
this Plan as the spouse or Dependent child of the covered Employee.
In the case of the termination of a covered Employee (except by
reason of such covered Employee's gross misconduct) or the reduction
in hours of the covered Employee's employment, the term Qualified
Beneficiary includes the covered Employee.

Exception - the term Qualified Beneficiary does not include an
individual whose status as a covered Employee is attributable to a
period in which such individual is a nonresident alien who received
no earned income from the employer which constituted income from
sources within the United States (within the meaning of Code section
911(d)(2) and section 861(a)(3)). If an individual is not a
Qualified Beneficiary pursuant to this paragraph, a spouse or
Dependent child of such individual shall not be considered a
Qualified Beneficiary by virtue of the relationship to such
individual.

E. "Qualifying Event" means with respect to a covered Employee, any of
the following events which, but for the continuation coverage under
this provision, would result in the loss of coverage of a Qualified
Beneficiary:

(i) the death of the covered Employee;

(ii) the termination (except by reason of such covered Employee's
gross misconduct) or reduction in hours of the covered
Employee's employment;

(iii) the divorce or legal separation of the covered Employee from
such covered Employee's spouse;

(iv) the entitlement to benefits of the covered Employee under
Title XVIII of the Social Security Act (Medicare);

(v) a dependent child ceasing to be a Dependent child under the
terms of this Plan;

(vi) the Employer's filing for Chapter 11 reorganization as it
would affect retiree coverage.

F. "University/College" means an accredited institution listed in the
current publication of accredited institutions of higher education.

12
<PAGE>

SECTION 7

MISCELLANEOUS

7.1 Amendment and Termination. The Employer may amend or terminate this Plan
at any time by action of the Committee. The Employer may amend this Plan
retroactively to enable the Plan to qualify as a cafeteria plan under
section 125 of the Code. No amendment shall deprive any Participant or
Beneficiary of any benefit to which he or she is entitled under this Plan
with respect to contributions previously made; and no amendment shall
provide for the use of funds or assets other than for the benefit of
Employees and their Beneficiaries, except as may be specifically
authorized by statute or regulation.

7.2 Effect of Plan on Employment. The Plan shall not be deemed to constitute
a contract of employment between the Participating Employer and any
Participant or to be consideration or an inducement for the employment of
any Participant or Employee. Nothing contained in this Plan shall be
deemed to give any Participant or Employee the right to be retained in
the service of the Participating Employer or to interfere with the right
of the Participating Employer to discharge any Participant or Employee at
any time regardless of the effect which such discharge will have upon him
or her as a Participant of this Plan.

7.3 Alienation of Benefits. No benefit under this Plan may be voluntarily or
involuntarily assigned or alienated.

7.4 Facility of Payment. If the Employer deems any person incapable of
receiving benefits to which he is entitled by reason of not having
reached the age of majority, illness, infirmity, or other incapacity, it
may direct that payment be made directly for the benefit of such person
or to any person selected by a Participating Employer to disburse it,
whose receipt shall be a complete acquittance therefor. Such payments
shall, to the extent thereof, discharge all liability of the
Participating Employer.

7.5 Proof of Claim. As a condition of receiving benefits under the Plan, any
person may be required to submit whatever proof the Plan Administrator
may require either directly to the Plan Administrator or to any person
delegated by it.

7.6 Status of Benefits. The Employer believes that this Plan is in compliance
with section 125 of the Code and that it provides certain benefits to
Employees which are tax free pursuant to other provisions of the Code.
This Plan has not been submitted to the Internal Revenue Service for
approval and thus there can be and is no assurance that intended tax
benefits will be available. Any Participant, by accepting benefits under
this Plan, agrees to be liable for any tax that may be imposed with
respect to those benefits, plus any interest as may be imposed.

7.7 Applicable Law. The Plan shall be construed and enforced according to the
laws of the Commonwealth of Pennsylvania to the extent not preempted by
any federal law.

7.8 Source of Benefits. The Participating Employer and any insurance company
contracts purchased or held by a Participating Employer shall be the sole
sources of benefits under the Plan. No Employee or Beneficiary shall have
any right to, or interest in, any assets of the Participating Employer

13
<PAGE>

upon termination of employment or otherwise, except as provided from time
to time under the Plan, and then only to the extent of the benefits
payable under the Plan to such Employee or Beneficiary.

7.9 No Reversion to Employer. At no time shall any part of Plan assets be
used for, or diverted to, purposes other than the exclusive benefit of
Participants or their Beneficiaries, or for defraying reasonable expenses
of administering the Plan.

7.10 Severability. If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any
other provision, and this Plan shall be construed and enforced as if
such provision had not been included.

7.11 Heirs and Assigns. This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns of all parties, including each
Participant and Beneficiary.

7.12 Headings and Captions. The headings and captions set forth in the Plan
are provided for convenience only, shall not be considered part of the
Plan, and shall not be employed in construction of the Plan.

7.13 Information to be Furnished. Participants shall provide the Employer
and/or Participating Employer with such information and shall complete
and sign such forms and documents, as may reasonably be requested from
time to time for the purpose of administration of the Plan.

Executed this 16 day of April, 1993.

ATTEST: DEB SHOPS INC.

/s/ Warren Weiner By:
- ------------------------ -------------------------------
Secretary (Authorized Officer)

14
<PAGE>

DEB SHOPS INC.

SCHEDULE A

SCHEDULE OF BENEFITS

MEDICAL PLAN

<TABLE>
<CAPTION>
Employee Contributions*
US US
Greater Healthcare Healthcare
Blue Cross Atlantic PA NJ Keystone
---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Coverage Tiers
- ---------------

Employee Only ** ** ** ** **
Subscriber & Child ** ** ** ** **
Subscriber & Children ** ** ** ** **
Subscriber & Spouse ** ** ** ** **
Family ** ** ** ** **
</TABLE>

DENTAL PLAN

US
Healthcare
Keystone PA
-------- ----------
Employee Only ** **
Subscriber & Child/ren ** **
Subscriber & Spouse ** **
Family ** **

* Per weekly pay

** The Employee contributions necessary to obtain the coverage options set
forth in this Schedule A above will be communicated by the Employer to
Eligible Employees upon commencement of participation and to Participants at
the time of the Enrollment Period. The required Employee contribution
amounts will be considered as the maximum elective Employee contributions
necessary for participation in each Plan option above.

Additionally, the medical and/or dental plans offered will depend upon the
plan's availability in each location. Dental benefits are 100% employee
contributions.

15
<PAGE>

DEB SHOPS INC.

SCHEDULE A

SCHEDULE OF BENEFITS

UNION EMPLOYEES

MEDICAL PLAN

<TABLE>
<CAPTION>
Employee Contributions*
US
Blue Cross Blue Cross Greater Healthcare
CMM Traditional Atlantic PA Keystone
---------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Coverage Tiers
- --------------

Employee Only ** ** ** ** **
Subscriber & Child ** ** ** ** **
Subscriber & Children ** ** ** ** **
Subscriber & Spouse ** ** ** ** **
Family ** ** ** ** **
</TABLE>

DENTAL PLAN

US
Healthcare
Keystone PA
-------- ----------
Employee Only ** **
Subscriber & Child/ren ** **
Subscriber & Spouse ** **
Family ** **

* Per weekly pay

Additionally, the medical and/or dental plans offered will depend upon the
plan's availability in each location. Dental benefits are 100% employee
contributions.

16
<PAGE>

AMENDMENT 1

EXHIBIT 10-19.1
---------------

DEB SHOPS, INC.
PREMIUM CONVERSION PLAN

DEB SHOPS, INC., hereby adopts this amendment to the DEB SHOPS, INC.
PREMIUM CONVERSION PLAN.

1. Section 1.10 of the Plan is hereby amended in its entirety to read as
follows:

"1.10 'Eligible Employee' shall mean any Employee other than a
Highly Compensated Employee who is regularly scheduled to
work for a Participating Employer."

2. Section 1.14 of the Plan is hereby amended in its entirety to read as
follows:

"1.14 Entry Date shall mean for salaried employees, Assistant
Managers and union employees, the first day of the month
coinciding with or following 90 days of continuous
employment as an Eligible Employee. For all other em-
ployees the Entry Date is the first day of the month coin-
ciding with or following 180 days of continuous employment
as an Eligible Employee. For all employees of Books
Management, Inc. who are employed on October 20, 1995, Entry
Date means October 20, 1995."

3. Section 1.16 of the Plan is hereby amended in its entirety to read as
follows:

"1.16 'Highly Compensated Employee' shall mean any Employee who is
an officer, a shareholder owning more than five percent
(5%) of the voting power or value of all classes of stock of
the Employer, highly compensated, or a spouse or dependent
(within the meaning of Section 152 of the Code) of any
individual described in the foregoing."

4. The preceding amendments are effective as of October 20, 1995.

IN WITNESS WHEREOF, and as evidence of the adoption of this amendment,
the Employer has caused the same to be executed by its duly authorized officers
this 20th day of October, 1995.

DEB SHOPS, INC.

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

Attest: /s/ Warren Weiner
------------------------------
Secretary, Warren Weiner

<PAGE>

EXHIBIT 10-20
-------------

DEB SHOPS, INC.

1995 INCENTIVE STOCK OPTION PLAN

I. NAME AND PURPOSE.

A. Name. The name of this Plan shall be the Deb Shops, Inc. 1995
Incentive Stock Option Plan ("Plan").

B. Purpose. The purpose of the Plan is to provide favorable
opportunities for certain, select key employees of Deb Shops, Inc.
("Corporation") to purchase shares of the Corporation's Common Stock, thereby
encouraging them to acquire proprietary interests in the Corporation's Common
Stock. Further, on account of the Plan, such key employees should have an
increased incentive to contribute to the Corporation's future success and
prosperity, thus enhancing the value of the Corporation for the benefit of its
shareholders. The availability and offering of stock options under the Plan
supports and increases the Corporation's possibility to attract and retain
individuals of exceptional talent upon whom, in large measure, the sustained
progress, growth and profitability of the Corporation depends.

C. Stock Options to be Granted. Options granted under this Plan are
intended to be Incentive Stock Options within the meaning of Code ss.422(b) (as
hereinafter defined); however, Nonqualified Stock Options (as hereinafter
defined) may also be granted within the limitations of the Plan as described
herein.

II. DEFINITIONS.

For Plan purposes, except where the context indicates otherwise, the
following terms shall have the meanings set forth below:

A. "Board" shall mean the Board of Directors of the Corporation.

B. "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.

C. "Committee" shall mean the Compensation Committee, or such other
committee of the Board, that shall be designated by the Board to administer the
Plan. The Committee shall be composed of three (3) or more persons as from time
to time are appointed to serve by the Board. Only members of the Board shall
serve on the Committee. Each person serving on the Committee shall be a
disinterested person within the meaning of Rule 16b-3 of the Securities Exchange
Act of 1934, as amended.
<PAGE>

D. "Common Stock" shall mean the Common Stock, $0.01 par value, of the
Corporation.

E. "Corporation" shall mean and include Deb Shops, Inc., a Pennsylvania
corporation, and any parent or subsidiary of Deb Shops, Inc., as defined in Code
ss.425(e) and (f).

F. "Incentive Stock Option" or "ISO" shall mean a stock option granted
or exercised under the Plan that is intended to meet and comply with the terms
and conditions for an incentive stock option as set forth in Code ss.422.

G. "Fair Market Value" shall mean the closing sale price of the Common
Stock as quoted on the NASDAQ National Market system; provided, that if no sale
of Common Stock has occurred on that day, the "Fair Market Value" shall mean the
closing price as reported on the NASDAQ National Market for the next preceding
day on which a sale occurred. During such time as the Common Stock is not listed
in the NASDAQ National Market, "Fair Market Value" shall be the mean between the
closing dealer "bid" and "asked" prices for the Common Stock, and if no "bid"
and "asked" prices are quoted, "Fair Market Value" shall be determined by
reference to such prices on the next preceding day on which such prices were
quoted. In the event that the Common Stock is not listed in the NASDAQ National
Market, and no closing "bid" and "asked" prices are available, "Fair Market
Value" shall be established by the Committee acting in good faith.

H. "Nonqualified Stock Option or "NQSO" shall mean a stock option other
than an Incentive Stock Option.

I. "Optionee" shall mean an employee of the Corporation who has been
granted one or more ISOs under the Plan.

J. "Ten Percent Share Owner" shall mean an employee who owns more than
ten percent (10%) of the Common Stock of the Corporation as such amount is
calculated under Code ss.422(b)(6).

II. ADMINISTRATION.

A. The Committee. The Committee shall be vested with full authority to
make such rules and regulations as it deems necessary or desirable to administer
the Plan and to interpret the provisions of the Plan, unless otherwise
determined by the Board. Accordingly, the Committee shall have full power to
grant ISOs and NQSOs to delegate administrative responsibilities and to perform
all other acts it believes to be reasonable and proper.
<PAGE>

B. Discretion of the Committee. Subject to the provisions of the Plan,
the determination of those eligible to receive ISOs and/or NQSOs, and the
amount, type and timing of each ISO and NQSO and the terms and conditions of the
respective Option Documents (as hereinafter defined) shall rest in the sole
discretion of the Committee.

C. Interpretation of the Plan. The Board, or the Committee, may correct
any defect, supply any omission or reconcile any inconsistency in the Plan, or
in any granted ISO or NQSO, in the manner and to the extent it shall deem
necessary to carry the Plan into effect.

D. Decisions of the Committee. Any decision made, or action taken, by
the Committee arising out of or in connection with the interpretation and
administration of the Plan shall be final and conclusive, unless otherwise
determined by the Board. Decisions of the Committee. Any decision made, or
action taken, by the Committee arising out of or in connection with the
interpretation and administration of the Plan shall be final and conclusive,
unless otherwise determined by the Board.

E. Exchange of Option. The Committee may, in its sole discretion, grant
to an Optionee in exchange for surrender and cancellation of an outstanding ISO
or NQSO (the "Replacement Option") providing for the purchase of not more than
the number of shares of Common Stock so surrendered and cancelled and having an
exercise price equal to at least the Fair Market Value of the shares on the date
of grant of the Replacement Option and containing such other terms and
conditions as the Committee may prescribe.

III. SHARES SUBJECT TO THE PLAN.

The total number of shares of Common Stock available for grants of ISOs
and/or NQSOs under the Plan shall be two million (2,000,000), subject to
adjustment in accordance with Section 7 of the Plan, which shares may be either
authorized but unissued or reacquired shares of Common Stock. If an ISO or an
NQSO or any portion thereof shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares covered by such ISO or
NQSO shall be available for future grant.

I. ELIGIBILITY.

Consistent with the Plan's purpose, ISOs and/or NQSOs may be granted to
the Corporation's employees who are performing or have been engaged to perform
services of special importance to the management, operation or development of
the Corporation. Included as eligible employees are officers of the Corporation,
including those officers who are also members of the Board.
<PAGE>

I. STOCK OPTION TERNS AND CONDITIONS

All ISOs and NQSOs granted under the Plan shall be evidenced by written
documents (the "Option Documents") in such form as the Committee shall from time
to time approve. The Option Documents and each ISO and/or NQSO shall comply with
and be subject to the following terms and conditions and such other terms and
conditions which the Committee shall from time to time require that are not
inconsistent with the terms of the Plan including, but not limited to, the
following provisions:

A. Price. Each Option Document shall state the price at which ISOs
and/or NQSOs may be purchased (the "Option Price"). The Option Price per share
for any Optionee other than a Ten Percent Share Owner shall not be less than one
hundred percent (100%) of the Fair Market Value of a share of Common Stock on
the date of grant. The Option Price per share for an Optionee who is a Ten
Percent Share Owner shall not be less than one hundred ten percent (110%) of the
Fair Market Value of a share of Common Stock on the date of grant. The Option
Price shall be subject to adjustment only as provided in Section 7 below.

B. Period of the Grant. Each Option Document shall state the period for
which each ISO and/or NQSO is granted,, except that neither an ISO or an NQSO
shall be granted for a period longer than ten (10) years from the date of grant.

C. Time of Exercise. Each Option Document shall state the date on which
each ISO and/or NQSO may be exercised, except that no ISO or NQSO may be
exercised prior to the three hundred sixty-sixth (366th) day after such ISO or
NQSO was granted. The Committee may establish installment exercise terms for an
ISO such that the option becomes fully exercisable in a series of cumulating
portions The Committee may also accelerate the exercise of any ISO. An NQSO
shall be exercisable upon such terms as the Committee shall determine.

D. Exercise.

(1) An ISO or NQSO, or any portion thereof, shall be exercised by
delivery of a written notice of exercise to the Corporation and payment
of the full price of the shares being acquired pursuant to such
exercise. Until the shares of Common Stock subject to an ISO or NQSO
are issued to an Optionee, he or she shall have none of the rights of a
shareholder;

(2) Unless the shares to be purchased under an ISO or NQSO are
covered by a then current registration statement under the Securities
Act of 1933, as amended ("Act"),

2. each written notice of exercise shall contain the
Optionee's acknowledgment in such form and substance satisfactory
to the Corporation that:

(A) such shares are being purchased for investment and not
distribution or resale, (other than a distribution or resale
which in the opinion of counsel satisfactory to the
Corporation, may be made without violating the registration
provisions of the Act), and
<PAGE>

(B) the Optionee has been advised and understands that the
shares purchased pursuant to such ISO or NQSO have not been
registered under the Act, are "restricted securities" within
the meaning of Rule 144 under the Act and are subject to
restrictions on transfer, and that the Corporation is under
no obligation to register the shares purchased pursuant to an
ISO or NQSO under the Act or to take any action which would
make available to the Optionee any exemption from such
registration.

A. Payment. The price of an exercised ISO or NQSO, or portion thereof,
may be paid:

(1) in United States dollars in cash or by check, bank draft or
money order payable to the order of the Corporation;

(2) at the discretion of the Committee, through the delivery of
shares of Common Stock, with an aggregate Fair Market Value equal to
the Option Price, provided such tendered shares have been owned by the
Optionee for at least one (l) year prior to such exercise, or

(3) by combination of both (i) and (ii) above.

In addition at the request of an Optionee and to the extent permitted
by applicable law, the Corporation may, in its sole discretion, selectively
approve arrangements with a brokerage firm under which such brokerage firm, on
behalf of the Optionee, shall pay to the Corporation the Option Price of the
ISOs and/or NQSOs being exercised, and the Corporation, pursuant to an
irrevocable notice from the Optionee, shall promptly deliver the shares of
Common Stock being purchased to such brokerage firm.

A. Termination of Employment. In the event an Optionee shall cease to
be employed by the Corporation while he or she is holding one or more ISOs
and/or NQSOs, each such ISO or NQSO held shall expire at the earlier of the
expiration of the term of such ISO or NQSO or the following:

(1) up to three (3) months after termination due to discharge
without cause, retirement or death;

(2) the date which is one (1) year after termination due to
permanent and total disability within the meaning of Code ss.22(e)(3),
as determined by the Committee;
<PAGE>

(3) unless the Committee shall determine otherwise, if due co any
other reasons, the date which is coincident with the date of
termination.

Notwithstanding the foregoing, if the ISO or NQSO was granted less than three
hundred sixty-six (366) days prior to the date of termination of employment,
such ISO or NQSO shall expire immediately on the date of the Optionee's
termination of employment and shall not thereafter be subject to exercise.

A. Effect of Leaves of Absence. For the purposes of this section, it
shall not be considered a termination of employment when an Optionee is placed
by the Corporation on military leave, sick leave or such other type of leave of
absence that is considered as continuing intact the Optionee's employment
relationship; provided, however, for purposes of the Plan and the ISOs and NQSOs
granted hereunder, in the case of such leave of absence, the employment
relationship shall be deemed to continue until the later of the date when such
leave equals ninety (90) days or the date when the Optionee's right to
re-employment with the Corporation shall no longer be guaranteed either by
statute or contract.

B. Aggregate Fair Market Value Limitation. Each Option Document shall
state the number of shares to which each ISO or NQSO pertains. With respect to
ISOs, the aggregate Fair Market Value (determined at the time the ISO is
granted) of shares of Common Stock with respect to which ISO's under this Plan
are exercisable for the first time by an Optionee during any calendar year
(under all incentive stock option plans of the Corporation) shall not exceed one
hundred thousand dollars ($100,000).

C. Premature Disposition. The Option Documents shall provide that any
Optionee who disposes of shares of Common Stock acquired on the exercise of an
ISO by sale or exchange either:

(1) within two (2) years after the date of the grant of the ISO
under which the stock was acquired; or

(2) within one (1) year after the acquisition of such shares,
shall notify the Corporation of such disposition and of the amount
realized upon such disposition.

D. Other Provisions. The Option Documents shall contain such other
provisions, including without limitation restrictions upon the exercise of the
ISO, as the Committee shall deem advisable or shall be necessary for such ISOs
to constitute an Incentive Stock Option (within the meaning of Code ss.422). The
Committee shall have the right, subject to the consent of the Optionee, to amend
the Option Documents to the extent necessary to maintain the ISOs as Incentive
Stock Options (within the meaning of Code ss.422). In addition, the Option
Documents may contain such other provisions relative to NQSOs as the Committee
shall determine is necessary to effect the purposes of this Plan.
<PAGE>

II. ADJUSTMENTS.

A. Share Adjustments.

(1) In the event that the shares of Common Stock of the
Corporation, as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of stock or other
securities of the Corporation or of another corporation (whether by
reason of merger, consolidation, recapitalization, reclassification,
split-up, combination of shares or otherwise) or if the number of such
shares of Common Stock shall be increased through the payment of a
stock dividend, then, subject to the provisions of Paragraph (c) below,
there shall be substituted for or added to each share of Common Stock
of the Corporation which was theretofore appropriated, or which
thereafter may become subject to either an ISO or NQSO under the Plan,
the number and kind of shares of stock or other securities into which
each outstanding share of the Common Stock of the Corporation shall be
so changed or for which each such share shall be exchanged or to which
each such share shall be entitled, as the case may be. Outstanding ISOs
and NQSOs shall also be appropriately amended as to price and other
terms, as may be necessary to reflect the foregoing events.

(2) If there shall be any other change in the number or kind of
the outstanding shares of the Common Stock of the Corporation, or of
any stock or other securities in which such stock shall have been
changed, or for which it shall have been exchanged, and if a majority
of the disinterested members of the Board shall, in their sole
discretion, determine that such change equitably requires an adjustment
in any ISO or NQSO which was theretofore granted or which may
thereafter be granted under the Plan, then such adjustment shall be
made in accordance with such determination.

(3) The grant of an ISO or NQSO pursuant to the Plan shall not
affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure, to merge, to consolidate, to dissolve,
to liquidate or to sell or transfer all or any part of its business or
assets.

B. Corporate Changes.

(1) A dissolution or liquidation of the Corporation shall cause
each outstanding ISO or NQSO to terminate.

(2) In the event of a merger or consolidation in which the
Corporation is not the surviving corporation, each outstanding ISO and
NQSO shall be exchanged for and converted into an ISO or NQSO to
acquire stock of the surviving corporation, subject to such adjustments
as the Board may determine is reasonable under the circumstances.
<PAGE>

A. Fractional Shares. Fractional shares resulting from any adjustment
pursuant to this Section 7 may be settled as as the Board or the Committee (as
the case may be) shall determine.

B. Binding Determination. To the extent that the foregoing adjustments
relate to Common Stock or securities of the Corporation, such adjustments shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Notice of any adjustment shall be given by the
Corporation to each holder of an ISO or NQSO which shall have been so adjusted.

A. Reimbursement of the Corporation. Subject to the provisions of
Paragraph (b),the Corporation will require that an Optionee or any other person
or entity receiving Common Stock upon exercise of an Option, as a condition of
the exercise of such ISO or NQSO, pay or reimburse any taxes which the
Corporation is required to withhold in connection with the exercise of such ISO
or NQSO.

B. Payment by Optionee. An Optionee may satisfy the withholding
obligation described in Paragraph (a), in whole or in part, by electing to have
the Corporation withhold shares of Common Stock (otherwise issuable upon the
exercise of an ISO or NQSO) having a Fair Market Value equal to the amount
required to be withheld. An election by an Optionee to have shares withheld for
this purpose shall be subject to the following prestrictions:

(2) it shall be irrevocable;

(3) it shall be subject to disapproval by the Committee;

(4) if the Optionee is an officer of the Corporation within the
meaning of Section 16 of the Securities Exchange Act of 1934 (an
"Officer"), such election may not be made within six months of the
grant of the Option (except that this restriction shall not apply in
the event of the death or disability of the Optionee prior to the
expiration of the six-month period);

(5) if the Optionee is an Officer, such election must be made
either at least six (6) months prior to the Tax Date or in the ten-day
"window period" beginning on the third day following the release of the
Corporation's quarterly or annual summary statement of revenues and
earnings; and

(6) where the Tax Date of an Officer is deferred up to six (6)
months after the exercise of an Option, the full number of Option
shares will be issued or transferred upon exercise, but shall be
unconditionally obligated to tender back to the Corporation the proper
number of shares of Common Stock on the Tax Date.
<PAGE>

I. LISTING AND REGISTRATION OF SHARES

A. Restriction on Exercise of Options. No ISO or NQSO granted pursuant
to the Plan shall be exercisable in whole or in part if at any time the Board
shall determine in its discretion that the listing, registration or
qualification of the shares of Common Stock subject to such ISO or NQSO on any
securities exchange or under any applicable law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a condition of,
or in connection with, the granting of such ISO or NQSO or the issue of shares
thereunder, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board.

B. Legend. If a registration statement under the Securities Act with
respect to the shares issuable upon exercise of any ISO or NQSO granted under
the Plan is not in effect at the time of exercise, as a condition of the
issuance of the shares, the person exercising such ISO or NQSO shall give the
Committee a written statement, satisfactory in form and substance to the
Committee, that such person is acquiring the shares for such person's own
account for investment and not with a view to distribution. The Corporation may
place upon any stock certificate for shares issuable upon exercise of such ISO
or NQSO the following legend or such other legend as the Committee may prescribe
to prevent disposition of the shares in violation of the Act or other applicable
law:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ('ACT') AND MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN
OPINION OF COUNSEL FOR THE CORPORATION THAT REGISTRATION IS
NOT REQUIRED."
<PAGE>

I. AMENDMENT AND TERMINATION OF PLAN.

A. Amendment. The Board, without further approval of the shareholders,
may at any time, and from time to time, suspend or terminate the Plan, in whole
or in part, or amend if from time to time, in such respects as the Board may
deem appropriate and in the best interests of the Corporation; provided,
however, that no such amendment shall be made, that would, without approval of
the majority of the shareholders:

(1) materially increase the benefits accruing to an Optionee under
the Plan;

(2) except as is provided for in accordance with Section 7 under
the Plan, materially increase the number of shares of Common Stock that
may be issued under the Plan;

(3) materially modify the requirements as to eligibility for
participation in the Plan,

(4) reduce the minimum Option Price per share;

(5) extend the period of granting ISOs; or

(6) otherwise require the approval of shareholders in order to
maintain the exemption available under Rule 16b-3 (or any similar rule)
under the Securities Exchange Act of 1934.

B. Anti-Cutback. No amendment, suspension or termination of this Plan
shall in any manner affect any ISO or NQSO heretofore granted under the Plan,
without the consent of the Optionee or any person or entity validly claiming
under or through the Optionee.

C. Required Changes. The Board may amend the Plan, subject to the
limitations cited above, in such manner that it deems necessary to permit the
granting of ISOs meeting the requirements of future amendments or issued
regulations, if any, to the Code.

II. GOVERNMENT AND OTHER REGULATIONS

The obligation of the Corporation to issue, or transfer and deliver
shares of Common Stock to Optionees pursuant to the exercise of ISOs or NQSOs
granted under the Plan shall be subject to all applicable laws, regulations,
rules, orders and approval that shall then be in effect and required by
governmental entities and the NASDAQ National Market and/or the stock exchanges,
if any, on which the Corporation's Common Stock is traded.

I. MISCELLANEOUS PROVISIONS.

A. No Right to Continued Employment No person shall have any claim or
right to be granted an ISO or NQSO under the Plan, and neither the grant of an
ISO nor an NQSO hereunder shall be construed as giving an Optionee the right to
be retained in the employ of the Corporation, Further, the Corporation expressly
reserves the right at any time to dismiss an Optionee with or without cause,
free from any liability, or any claim under the Plan, except as specifically
provided under the Plan or in an ISO or NQSO granted prior to the termination of
employment which right to exercise such ISO or NQSO, if any, shall be limited in
accordance with the terms of the Plan and the applicable Option Documents.
<PAGE>

B. Non-Transferability. Except by will or the laws of descent and
distribution, no right or interest of any ISO or NQSO shall be assignable or
transferable, and no right or interest of any Optionee shall be liable for, or
subject to, obligation or liability of such Optionee.

C. Plan Expenses. Any expenses of administering the Plan shall be borne
by the Corporationby the Corporation

D. Use of Exercise Proceeds. The payment received from Optionees from
the exercise of ISOs and NQSOs under the Plan shall be used for the general
corporate purposes of the Corporation.

E. Construction of Plan. The place of administration of the Plan shall
be in the Commonwealth of Pennsylvania, and the validity, construction,
interpretation, administration and effect of the Plan and its rules and
regulations, ant rights relating to the Plans shall be determined solely in
accordance with he laws of the Commonwealth of Pennsylvania, when not otherwise
governed by applicable federal law.

F. Interpretation. As may be appropriates pronouns used in the Plan
shall be read and construed to the masculine, feminine or neuter. Likewise,
words in the singular shall be read and construed to refer to the plural.

G. Indemnification. In addition to such rights of indemnification as
they may have as members of the Board, or the Committee and only to the extent
that costs and expenses are not recovered under an insurance contract protecting
them with respect to any legal action described in this Paragraph (g), the
members of the Committee shall be indemnified by the Corporation against all
costs and expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be a party by reason of any
action take or failure to act under or in connection with the Plan or any ISO
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except a judgment based upon a finding of gross
negligence, recklessness, fraudulent or criminal acts, willful misconduct or bad
faith; provided that upon the institution of any such action, suit or
proceeding, a Committee member shall, in writing, give the Corporation notice
thereof and an opportunity, at its own expense, to handle and defend such action
before such Committee member undertakes to handle and defend it on his/her own
behalf.
<PAGE>

II. SHAREHOLDERS APPROVAL AND EFFECTIVE DATES.

Upon approval by the shareholders of the Corporation, this Plan shall
become unconditionally effective as of October 20, 1995. If the shareholders
shall not approve the Plan, the Plan shall not become effective, and any and all
action taken prior thereto shall be null and void or shall, if necessary, be
deemed to have been fully rescinded. In the event shareholders shall not approve
the Plan within twelve (12) months from the date of the adoption of this Plan,
no ISOs may be granted under this Plan and no ISO granted under this Plan may be
exercised; all such actions taken within such twelve (12) month period shall be
null and void or shall, if necessary, be deemed to have been fully rescinded.

<PAGE>

EXHIBIT 10-21
-------------

EMPLOYMENT AGREEMENT
--------------------

EMPLOYMENT AGREEMENT, dated as of the 1st day of December, 1995 between
DEB SHOPS, INC., a Pennsylvania corporation with its principal offices at 9401
Blue Grass Road, Philadelphia, Pennsylvania 19114 (the "Company") and ALLAN
LAUFGRABEN, an individual residing at 1900 Country Club Drive, Cherry Hill, New
Jersey 08003 (the "Employee").

BACKGROUND
----------

The Company wishes to employ the Employee and the Employee
wishes to enter into the employ of the Company on the terms and conditions set
forth in this Employment Agreement.

NOW, THEREFORE, in consideration of the foregoing and the
promises and covenants hereinafter set forth, the parties, intending to be
legally bound, hereby agree as follows:

I. Employment. The Company hereby employs the Employee and the Employee
accepts such employment on the terms and conditions hereinafter set forth.

II. Term. The term of this Agreement shall commence on the date hereof
and shall expire on January 31, 1999 Paragraphs 5 or 6.

III. Duties. The Employee is engaged hereunder as the Company's Senior
Vice President-Merchandising and he agrees to perform the duties and services
incident to that position, or such other or further duties and services of a
similar nature as may be reasonably required of him by the Company. The Employee
shall report to, and be subject to the direction and control of, the President
of the Company. The Employee shall perform his duties for the Company primarily
from the Company's facilities at 9401 Blue Grass Road, Philadelphia,
Pennsylvania 19114, or such other similarly situated locations of the Company to
which the Employee may be assigned to from time to time by the Company.
Notwithstanding the foregoing, Employee acknowledges and agrees that from time
to time, in the ordinary course of the business of the Company that the Employee
will be required to travel, and Employee hereby agrees to undertake such travel.
The Employee shall devote his full business time, attention, energies and best
efforts to the performance of his duties hereunder and to the promotion of the
business and interests of the Company and of any corporate subsidiaries or
affiliated companies. Nothing contained in this Section 3 shall be construed as
preventing Employee from investing his personal assets, provided that no such
investment (a) shall violate the provisions of Section 7 or 8 of this Agreement
or (b) constitute the usurpation of a corporate opportunity of the Company. For
purposes of this Section 3, a corporate opportunity shall be (i) one presented

<PAGE>

to or made available to the Company or any affiliate of the Company and known by
the Employee or (ii) an investment or acquisition known by Employee as being
considered by the Company or any affiliate of the Company, but a corporate
opportunity shall not include any investment opportunity presented to or made to
the Company or any affiliate of the Company which neither the Company nor such
affiliate elects to pursue within a reasonable time. In addition, during the
Term or extended term of this Agreement, the Employee serve on corporate, civic
or charitable boards or committees, except boards or committees of corporations
that compete with the Company.

IV. Compensation; Expenses.

A. Salary. The Employee shall be paid a salary at the rate of $250,000
per annum (the "Base Salary"). The Base Salary shall be paid in arrears in
accordance with the Company's regular payroll practices. The Base Salary may be
increased, but shall not be decreased, during the Term or extended term of this
Agreement.

B. Bonus.

(i) Employee shall be entitled to receive a bonus ("Bonus"), in the
manner set forth below, based on the increase in earnings before interest and
taxes ("EBIT") of the Company, including its apparel subsidiaries, and excluding
any subsidiary not engaged in the apparel business, on a consolidated basis, in
accordance with GAAP (the "Base Company").

(ii) The Bonus shall be determined as follows:

(A) The Bonus will equal four (4%) percent of the increase in
EBIT for the current fiscal year over the preceding fiscal year.

(B) Notwithstanding the preceding Subsection 4(b)(ii)(A), in the
event that the Base Company sustains an operating loss in any fiscal year, the
Bonus will be deemed earned if such operating loss is less than any operating
loss sustained by the Base Company in the preceding fiscal year; in any such
event, the Bonus will be four percent (4%) of the reduction in the operating
loss from the previous year to the current year.

(iii) The Bonus shall be calculated (based on the audited financial
statements of the Company) and paid no later than April 15 of each fiscal year
for the fiscal year ending January 31 of each year. The first calculation of the
Bonus shall be for the fiscal year ending January 31, 1997.

(iv) Notwithstanding the provisions of this Section 4(b), in no
event shall the Bonus exceed $300,000.

A. Stock Options. On or before January 30, 1996, the Company
shall issue to Employee options to purchase up to 200,000 shares of the Common
Stock of the Company in accordance with the vesting schedule set forth on
Schedule 4(c) attached, and pursuant to the provisions of the Company's
Incentive Stock Option Plan, and subject to applicable law. A copy of the
Company's Incentive Stock Option Plan was delivered to the Employee. In the
event that the Employee voluntarily terminates his employment, or in the event
that the Company terminates the Employee for cause as provided in Section 6(a)
of this Agreement, any options which have not vested as of the date of such
termination of employment shall be deemed to have terminated.
<PAGE>

B. Fringe Benefits. The Employee shall be entitled to such
benefits and perquisites as are provided under the Company's standard executive
benefit package to the extent and on the same terms and conditions as are
accorded to other executives of the Company, provided however nothing herein,
except as provided in Section 4(c) above, shall be deemed to require grants or
awards to Employee under any benefit plans which provide for grants or awards at
the discretion of any Board of Directors or any committee thereof or
administrator. Throughout the Term of this Agreement, the Company will furnish
the Employee with an automobile similar to that provided to other executive
officers in accordance with Company policy and will pay all reasonable expenses
incurred in connection with its operation. Nothing herein shall require Company
to establish, maintain or continue any of the fringe benefits already in
existence or hereafter adopted for employees of the Company, nor restrict the
right of the Company to amend, modify or terminate such fringe benefit programs
in a manner which does not discriminate against Employee as compared to other
executive employees of the Company. The Employee shall also be entitled to up to
three (3) weeks' paid vacation during each year of this Agreement. Any vacations
shall be taken at such times as are mutually convenient for the Company and the
Employee.

C. Business Expenses. The Company will pay, or reimburse the
Employee for, all ordinary and reasonable out-of-pocket business expenses
incurred by Employee in connection with his performance of services hereunder
upon the Employee's submission of a written, itemized account of such business
expenses in accordance with the Company's expense authorization and approval
procedures then in effect.

II. Death or Disability of the Employee.y of the Employee.

A. Death. In the event of the death of the Employee during the
Term or extended term of this Agreement, this Agreement shall terminate
effective as of the date of the Employee's death, and the Company shall not have
any further obligation or liability hereunder except that the Company shall pay
to Employee's estate, as soon as practicable (i) any accrued and unpaid Base
Salary, (ii) a pro rata portion of any Bonus (based upon the period of
Employee's employment) otherwise payable with respect to the fiscal year in
which Employee died, (iii) the amount of any Bonus for prior periods which Bonus
was earned but not paid prior to Employee's death, and (iv) unreimbursed
business expenses for which Employee is entitled to be reimbursed under Section
4 of this Agreement to the date of the Employee's death.

B. Disability. In the event of the Total Disability (as hereafter
defined) of the Employee, the Company shall have the right to terminate the
Employee's employment hereunder by giving the Employee 90 days prior written
notice thereof, and, upon expiration of such 90-day period, the Company shall
not have any further obligation or liability under this Agreement except that
the Company shall pay to the Employee, as soon as practicable (i) any accrued
and unpaid Base Salary, (ii) a pro rata portion (based upon the period of
Employee's employment) of any Bonus otherwise payable with respect to the fiscal
year in which Employee became totally Disabled, (iii) the amount of any Bonus
for prior periods which Bonus was earned but not paid prior to Employee's Total
Disability, and (iv) any unreimbursed business expenses in accordance with the
provisions of Paragraph 4 hereof to the date of such Total Disability; provided,
however, that if the Employee, during any period of disability, receives any
periodic payments representing lost compensation under any disability insurance
plan, the premiums for which have been paid by the Company, the amount of
compensation that the Employee would be entitled to receive from the Company
during such period of disability shall be decreased by the amounts of such
payments.

The term "Total Disability", when used herein, shall mean a mental,
emotional or physical condition which has rendered the Employee for a period of
180 consecutive days, or for a total of 180 days during any period of 12
consecutive months, during the term of this Agreement unable or incompetent to
carry out, on a substantially full time basis, the job responsibilities he held
or tasks that he was assigned at the time the disability was incurred. The
Employee agrees, in the event of any dispute as to the determination made
pursuant to this Paragraph 5, to submit to a physical or other examination by a
licensed physician approved by Company, and such physician's determination and
resolution of the dispute shall be binding and conclusive. During the period in
which the determination of the Employee's Total Disability shall be under
review, the Employee shall continue to be treated for all purposes of this
Agreement as an employee of the Company, enjoying the full status with full pay
to which he would otherwise be entitled under this Agreement.

<PAGE>

I. Termination.

Termination by Company for Cause. Company shall have the right to
terminate this Agreement and employment hereunder "for cause" by giving Employee
written notice to that effect. Any such termination of employment shall be
effective on the date specified in such notice. In the event of such
termination, Company shall pay to Employee (i) his accrued and unpaid Base
Salary to the effective date of the termination, and (ii) any business expenses
remaining unpaid on the effective date of the termination for which Employee is
entitled to be reimbursed under Section 4 of this Agreement. For the purpose of
this Agreement, "for cause" shall mean (i) commission of a willful act of
dishonesty in the course of Employee's duties hereunder which injures Company,
(ii) conviction by a court of competent jurisdiction of a crime constituting a
felony or conviction in respect of any act involving fraud, dishonesty, or moral
turpitude, (iii) Employee's continued, habitual intoxication or performance
under the influence of controlled substances, after Company shall have provided
written notice to Employee and given Employee 30 days within which to commence
rehabilitation with respect thereto, and Employee shall have failed to commence
or thereafter complete such rehabilitation, (iv) frequent or extended
absenteeism (not as a result of incapacity or disability) resulting in a
material failure by Employee in the performance of his duties hereunder and
which shall not have been cured within 30 days after Company shall have advised
Employee in writing of its intention to terminate Employee's employment in
accordance with the provisions of this Subsection 6(a), in the event such
condition shall not have been cured, (v) engaging in any act which has the
potential for material injury to Company and which shall not have been cured
within thirty days after Company shall have advised Employee in writing of its
intention to terminate Employee's employment in accordance with the provisions
of this Subsection 6(a), in the event such act shall not have been cured, (vi)
any act constituting a violation of the written firearm and dangerous weapons
policy of Company, a copy of which has been provided to the Employee, or (vii)
breach of any of the provisions of Sections 7 or 8 of this Agreement or
non-compliance with or breach of any of the material terms or provisions of this
Agreement, which shall not have been cured within thirty (30) days after the
Company shall have advised the Employee in writing of its intention to terminate
the Employee's employment in accordance with the provisions of this Subsection
6(a), in the event such act shall not have been cured.

B. Termination Without Cause. The Company shall have the right to
terminate Employee's employment without cause or for unacceptable performance.
In the event of such termination, or if the Employee resigns for Good Reason (as
hereafter defined) Company shall pay Employee an amount equal to the lesser of
(i) Employee's remaining Base Salary for the balance of the Term or (ii) six (6)
months Base Salary. This provision shall only apply to the initial Term of this
Agreement and not to any extensions of this Agreement. Upon such payment,
Company shall have no further obligations with respect to Employee. "Good
Reason" shall mean the resignation of the Employee from employment by the
Company as a result of a reduction in his Base Salary or Bonus, or a substantial
diminution in his duties, responsibilities or reporting responsibility, without
his express prior written consent.

<PAGE>

C. Pro Rata Payments. In the event of the termination of Employee as
described in this Section 6, the Company shall also pay to Employee (i) any
accrued and unpaid Base Salary up to the date of such termination, (ii) only
with respect to termination without cause as described in Section 6(b) above, a
pro rata portion of any Bonus for the year in which termination occurs, such
bonus prorated based upon the date of such termination, (iii) the amount of any
Bonus for prior fiscal years which Bonus was earned but not paid prior to
Employee's termination and (iv) unreimbursed business expenses for which
Employee is entitled to be reimbursed under Section 4 of this Agreement to the
date of Employee's termination. In the event that the Employee's employment is
terminated in connection with any Change in Control of the Company (as hereafter
defined) the Company shall pay to the Employee as liquidated damages Employee's
Base Salary during the one (1) year period following such termination, in which
event the Employee's Base Salary shall be paid in the manner described in
Section 4(a). A "Change in Control of the Company" shall mean (i) an acquisition
(other than directly from the Company) of any Voting Securities by any "Person"
(as such term is defined in Sections 13(d) or 14(d) of the Securities Exchange
Act of 1934 ("Exchange Act")) immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the combined voting power of the Company's then
outstanding Voting Securities, provided that Marvin Rounick and Warren Weiner
own less than 50% of the Company's then outstanding Voting Securities, or (ii)
approval by stockholders of the Company of (A) a merger, consolidation or
reorganization involving the Company, pursuant to which Marvin Rounick and
Warren Weiner own less than 50% of the Company's then outstanding Voting
Securities, (B) a complete liquidation or dissolution of the Company, or (C) an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company to any Person (other than a transfer to a Subsidiary or
affiliate of the Company).

II. Confidential and Proprietary Information. Employee recognizes and
acknowledges that he will have access to certain confidential information of the
Company and its affiliates and that such information constitutes valuable,
special and unique property of the Company and its affiliates. Employee agrees
that he will not, for any reason or purpose whatsoever, during or after the term
of his employment, disclose any of such confidential information to any party
without express authorization of the Company, except as necessary in the
ordinary course of performing his duties hereunder. Employee further
specifically agrees:

A. All proprietary business and technical information (whether written
or oral) disclosed in connection with this Agreement or otherwise known to the
Employee regarding the Company shall be received and retained by the Employee as
strictly confidential, and such information shall only be disseminated
internally within the Company and its affiliates and on a need-to-know basis.

<PAGE>

B. All business or technical information identified by the Company or
reasonably identifiable and of which the Employee became aware in the conduct of
his duties hereunder and which is proprietary to the Company shall be and remain
the exclusive property of the Company at all times and shall be returned to the
Company upon its request or upon termination or cancellation of this Agreement.
In the event that Employee is required by legal process to disclose any
confidential information, Employee shall provide the Company with prompt notice
of such requirement so that the Company may seek a protective order or other
appropriate remedy or waive compliance with the provisions of this Agreement. In
the event that a protective order is obtained, Employee shall use reasonable
efforts to assure that all such information disclosed will be covered by such
order or other remedy. Whether or not such protective order or other remedy is
obtained, or that the Company waives compliance with the provisions of this
Agreement, Employee will disclose only that portion of such information which
Employee is legally required to disclose. Notwithstanding the foregoing, there
shall be no obligation to retain as confidential information which is in the
public domain at the time of receipt or comes into the public domain without
breach of this Agreement.

III. Equitable Relief.

A. The Employee acknowledges that by reason, among others, of the
uniqueness of the Company's business, that the covenants set forth in Section 7
are reasonable and necessary for the protection of the Company's legitimate
business interests.

B. The Employee hereby acknowledges that irreparable harm will result
to the Company in the event of the breach of any of the covenants contained in
Section 7. In the event that the Employee breaches any of the covenants
contained in Section 7, the Employee agrees that in addition to all other
remedies or damages which may be available to the Company, the Company shall be
entitled to seek and obtain both temporary and permanent restraining orders or
injunctions or similar equitable relief issued by a court to prevent the
violation of any of the covenants made by the Employee pursuant to this
Agreement, without any necessity to prove actual damages.

C. The Employee expressly acknowledges and agrees that the provisions
of Section 7 shall survive the termination of this Agreement.

<PAGE>

IV. Severability; Governing Law; Jurisdiction.Law; Jurisdiction.

A. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision of Section 7 hereof is invalid
or unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope of the
term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.

B. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Pennsylvania without giving effect to
any choice or conflict of law provision or rule (whether of the Commonwealth of
Pennsylvania or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the internal laws of the Commonwealth of
Pennsylvania.

C. Each of the parties hereto submits to the exclusive jurisdiction and
venue of the appropriate state court in Montgomery County, Pennsylvania or the
federal courts of the Eastern District of Pennsylvania, in any action or
proceeding arising out of or relating to this Agreement, agrees that all claims
in respect of the action or proceeding shall be heard and determined exclusively
in such court, and agrees not to bring any action or proceeding arising out of
or relating to this Agreement in any other court.

V. Notices. All notices, requests, demands, claims, and other
communications hereunder (each, a "Notice") will be in writing, and sent by
registered or certified mail, return receipt requested, postage prepaid, by
overnight courier service, or by any other means reasonably calculated to
provide notice (including personal delivery, expedited courier, messenger
service, telecopy, telex, or ordinary mail) and addressed to the intended
recipient as set forth below:

If to the Employee: Copy to:

Allan Laufgraben Kenneth C. Edgar, Jr.
1900 Country Club Drive Simpson, Thacher & Bartlett
Cherry Hill, NJ 08003 425 Lexington Avenue,
25th Floor
New York, New York 10017

If to the Company: Copy to:

Marvin Rounick, President Barry H. Frank, Esquire
Deb Shops, Inc. Mesirov Gelman Jaffe
9401 Blue Grass Road Cramer & Jamieson
Philadelphia, PA 19114 1735 Market Street
Philadelphia, PA 19103
<PAGE>

A Notice shall be deemed to have been duly given when it actually is received or
when receipt is refused by the intended recipient. Any party may change the
address to which Notices hereunder are to be delivered by giving the other party
notice in the manner herein set forth.

I. Miscellaneous.

A. This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes any prior or
contemporaneous understandings, agreements, or representations by or between the
parties hereto, written or oral, to the extent they relate in any way to the
subject matter hereof.

B. This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their successors and permitted assigns. The services
provided by the Employee under this Agreement are of a personal nature, and the
Employee shall not assign, convey or transfer this Agreement or any part of his
rights under this Agreement without the prior written consent of the Company.
The Company may directly or indirectly assign any or all of its rights hereunder
to any affiliate, or to any successor to substantially all of the assets or
business of the Company. In the event that Company assigns any of its rights or
obligations hereunder to any of its affiliates, the Company will remain liable
for the obligations hereunder. In the event that the Company assigns this
Agreement to a purchaser of all or substantially all of the assets and business
of the Company, the Company's obligations hereunder will cease, provided that
such purchaser is not an affiliate of the Company. As used in this Agreement the
term "Company" shall mean both the Company as defined above and any such
successor that assumes this Agreement by operation of law or otherwise.

C. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by the parties hereto. No waiver
by any party of any provision hereof shall be deemed to extend to any prior or
subsequent breach of any such provision or constitute a waiver of any other
provision hereof or affect in any way any rights arising by virtue of any prior
or subsequent such occurrence.
<PAGE>

D. The headings contained herein are inserted for convenience only and
shall not be deemed to have any substantive meaning.

E. The Company shall reimburse the Employee for reasonable attorneys'
fees incurred by the Employee in negotiating and, if necessary, enforcing this
Agreement, up to a maximum of $2,000.

F. The Company shall maintain officer's liability insurance on behalf
of the Employee during the Term and any extended term of this Agreement.
Following the termination of the Employee's employment, the Employee shall
retain all rights to indemnification under applicable law or under the Company's
Certificate of Incorporation or By-Laws, as they may be amended or restated from
time to time.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.

DEB SHOPS, INC.

By: /s/ MARVIN ROUNICK
-----------------------------------
MARVIN ROUNICK, PRESIDENT

ALLAN LAUFGRABEN

<PAGE>

SCHEDULE 4(c)

The Employee's entitlement to exercise the options described in Section
4(c) of the Employment Agreement dated December 1, 1995, between Deb Shops, Inc.
and the Employee shall vest in accordance with the following schedule:

Number of Shares which may be
Vesting Date Acquired pursuant to Option Exercise
- ------------ -------------------------------------
January 31, 1997 50,000
July 31, 1997 25,000
January 31, 1998 25,000
July 31, 1998 25,000
January 31, 1999 25,000
July 31, 1999 25,000
January 31, 2000 25,000
------

TOTAL 200,000

<PAGE>

EXHIBIT 10-22
-------------
AGREEMENT
---------

AGREEMENT, dated as of the 31st day of January, 1996, between DEB
SHOPS, INC., (the "Company") and Barry Vesotsky, (the "Employee").

WHEREAS, the Employee is employed by the Company; and

WHEREAS, the Company desires to supplement the Employee's salary by
providing the Employee with an incentive bonus;

NOW, THEREFORE, in consideration of the above premises and the
Employee's continued employment and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

1. Employee shall be entitled to receive a bonus ("Bonus"), in the
manner set forth below, based on the increase in earnings before interest and
taxes ("EBIT") of the Company, including its apparel subsidiaries, and excluding
any subsidiary not engaged in the apparel business, on a consolidated basis, in
accordance with GAAP (the "Base Company").

2. The Bonus shall be determined as follows:

(A) The Bonus will equal two percent (2%) of the increase in EBIT
for the current fiscal year over the preceding fiscal year.

(B) Notwithstanding the preceding Subsection 2(A), in the event that
the Base Company sustains an operating loss in any fiscal year, the Bonus will
be deemed earned if such operating loss is less than any operating loss
sustained by the Base Company in the preceding fiscal year; in any such event,
the Bonus will be two percent (2%) of the reduction in the operating loss from
the previous year to the current year.

3. The Bonus shall be calculated (based on the audited financial
statements of the Company) and paid no later than April 15 of each fiscal year
for the fiscal year ending January 31 of each year. The first calculation of the
Bonus shall be for the fiscal year ending January 31, 1997.

4. Notwithstanding anything herein to the contrary, in no event shall
the Bonus exceed $150,000.

5. This Agreement shall be for a term of three (3) years commencing on
February 1, 1996 and expiring on January 31, 1999, so long as the Employee is
employed by the Company.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.

DEB SHOPS, INC.

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

/s/ BARRY VESOTSKY
---------------------------------
Barry Vesotsky

<PAGE>

EXHIBIT 11

DEB SHOPS, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE

Year Ended January 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Average shares outstanding 12,845,316 13,268,236 15,594,362 15,584,291 15,551,454

Net effect of dilutive stock
options and restricted
incentive stock based
on the treasury
stock method - - - 1,675 17,203
---------- ---------- ---------- ---------- ----------
12,845,316 13,268,236 15,594,362 15,585,966 15,568,657
========== ========== ========== ========== ==========

Net (loss) income ($4,224,405) ($2,718,871) $ 5,146,496 $ 7,251,764 $ 8,594,014

Preferred dividends 55,200 55,200 55,200 55,200 55,200
----------- ----------- ----------- ---------- ----------
($4,279,605 ($2,774,071) $ 5,091,296 $ 7,196,564 $ 8,538,814
=========== =========== =========== =========== ===========

Per common share amount ($ .33) ($ .21) $ .33 $ .46 $ .55
=========== =========== =========== =========== ===========
</TABLE>

<PAGE>

EXHIBIT 22
<TABLE>
<CAPTION>

Subsidiaries of
DEB SHOPS, INC.
A Pennsylvania corporation/1/
<S> <C> <C>
Deb Shops, Inc., Deb of Kentucky, Inc., Deb of Rhode Island, Inc.,
a New Jersey corporation a Kentucky corporation a Rhode Island corporation

Joy Shops, Inc., Deb Shops of Louisiana, Inc., Deb of South Carolina, Inc.,
a Pennsylvania corporation a Louisiana corporation South Carolina corporation

Joy Shops, Inc., Deb of Maine, Inc., Deb of South Dakota, Inc.,
a Delaware corporation a Maine corporation a South Dakota corporation

D.B. Interest, Inc., Deb Shops of Maryland, Inc., Deb of Tennessee, Inc.,
a Delaware corporation a Maryland corporation a Tennessee corporation

D.B. Know, Inc., Deb of Massachusetts Inc., Deb of Texas, Inc.,
a Delaware corporation a Massachusetts corporation a Texas corporation

D.B. Royalty, Inc., Deb of Michigan, Inc., Deb of Utah, Inc.,
a Delaware corporation a Michigan corporation a Utah corporation

Deb Shops of Alabama, Inc., Deb Shops of Minnesota, Inc., Deb of Virginia, Inc.,
an Alabama corporation a Minnesota corporation a Virginia corporation

Deb of Arkansas, Inc., Deb Shops of Missouri, Inc., Deb of Washington, Inc.,
an Arkansas corporation a Missouri corporation a Washington corporation

Deb of California, Inc., Deb of Nebraska, Inc., Deb of West Virginia, Inc.,
a California corporation a Nebraska corporation a West Virginia corporation

Deb of Colorado, Inc., Deb of New Hampshire, Inc., Deb of Wisconsin, Inc.,
a Colorado corporation a New Hampshire corporation a Wisconsin corporation

Deb of Connecticut, Inc., Deb of New Jersey, Inc., Tops 'N Bottoms of New York, Inc.
a Connecticut corporation a New Jersey corporation a New York corporation

Deb of Delaware, Inc., Deb of New Mexico, Inc., Books Management, Inc.,
a Delaware corporation a New Mexico corporation a Pennsylvania corporation

Deb Fashions of Florida, Inc., Deb of New York, Inc., Atlantic Books-Pennsylvania, Inc.,
a Florida corporation a New York corporation a Pennsylvania corporation

Deb Shops of Georgia, Inc., Deb Shops of North Carolina, Inc., Atlantic Books-New Jersey, Inc.,
a Georgia corporation a North Carolina corporation a New Jersey corporation

Deb Shops of Idaho, Inc., Deb of North Dakota, Inc., Atlantic Books-Delaware, Inc.,
an Idaho corporation a North Dakota corporation a Delaware corporation

Deb of Illinois, Inc., Deb Shops of Ohio, Inc.,
an Illinois corporation an Ohio corporation

Deb of Indiana, Inc., Deb of Oklahoma, Inc.,
an Indiana corporation an Oklahoma corporation

Deb Shops of Iowa, Inc., Deb of Oregon, Inc.,
an Iowa corporation an Oregon corporation

Deb of Kansas, Inc., Deb of Pennsylvania, Inc.,
a Kansas corporation a Pennsylvania corporation
</TABLE>

/1/ All subsidiaries are owned 100% by Deb Shops, Inc., except
(a) D.B. Royalty, Inc. which is owned 100% by Joy Shops, Inc., a
Delaware corporation.
(b) Atlantic Books-Pennsylvania, Inc.; Atlantic Books-New Jersey, Inc.;
Atlantic Books-Delwaware, Inc. are owned 100% by Books Management, Inc.

<PAGE>
EXHIBIT 24-1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated February 28, 1996 included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-11983.

ARTHUR ANDERSEN, LLP

Philadelphia, Pa
April 2 , 1996

<ARTICLE> 5
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 51,569,038
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 16,655,946
<CURRENT-ASSETS> 73,064,822
<PP&E> 47,729,434
<DEPRECIATION> 30,573,572
<TOTAL-ASSETS> 95,597,463
<CURRENT-LIABILITIES> 13,118,011
<BONDS> 0
460
0
<COMMON> 156,883
<OTHER-SE> 97,912,265
<TOTAL-LIABILITY-AND-EQUITY> 95,597,463
<SALES> 176,733,372
<TOTAL-REVENUES> 178,417,932
<CGS> 104,155,390
<TOTAL-COSTS> 184,642,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,224,405)
<INCOME-TAX> (2,000,000)
<INCOME-CONTINUING> (4,224,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,224,405)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)

</TABLE>