UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended November 2, 2013

¨ 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: 000-51648

dELiA*s, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3397172
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

50 West 23^rd Street, New York, NY 10010

(Address of Principal Executive Offices) (Zip Code)

(212) 590-6200

(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report:

None

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-accelerated Filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of December 10, 2013 the registrant had 69,168,060 shares of common stock, $.001 par value per share, outstanding.

dELiA*s, Inc.

TABLE OF CONTENTS

		Page No.
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Operations		4
	Condensed Consolidated Statements of Cash Flows		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
Item 4.	Controls and Procedures		28
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		29
Item 1A.	Risk Factors		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3.	Defaults upon Senior Securities		32
Item 4.	Mine Safety Disclosures		32
Item 5.	Other Information		32
Item 6.	Exhibits		32
	EXHIBIT INDEX
	SIGNATURES		33

2

Item 1. Financial Statements (unaudited)

dELiA*s, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

	November 2, 2013			February 2, 2013			October 27, 2012
	(unaudited)						(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,866		$	16,812		$	5,919
Inventories, net		25,893			24,840			32,271
Prepaid catalog costs		2,271			1,012			2,300
Restricted cash		9,608			—			—
Other current assets		6,169			4,882			3,146
Assets held for sale		—			6,809			8,308
TOTAL CURRENT ASSETS		45,807			54,355			51,944
PROPERTY AND EQUIPMENT, NET		28,411			36,107			38,340
GOODWILL		—			—			4,462
INTANGIBLE ASSETS, NET		2,419			2,419			2,419
RESTRICTED CASH		1,203			—			—
OTHER ASSETS		935			921			938
ASSETS HELD FOR SALE		—			690			—
TOTAL ASSETS	$	78,775		$	94,492		$	98,103
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	19,772		$	26,782		$	20,461
Bank loan payable		1,233			—			—
Accrued expenses and other current liabilities		9,897			11,168			10,481
Income taxes payable		704			623			916
Liabilities held for sale		—			5,166			4,651
TOTAL CURRENT LIABILITIES		31,606			43,739			36,509
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES		8,724			9,500			9,825
TOTAL LIABILITIES		40,330			53,239			46,334
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred Stock; $.001 par value, 25,000,000 shares authorized, none issued		—			—			—
Common Stock; $.001 par value, 100,000,000 shares authorized; 69,108,614; 31,939,615 and 31,684,387 issued, respectively		69			32			32
Additional paid-in capital		137,839			99,942			99,788
Accumulated deficit		(99,391	)		(58,721	)		(48,051	)
Treasury stock at cost; 49,807; -0- and -0- shares, respectively		(72	)		—			—
TOTAL STOCKHOLDERS’ EQUITY		38,445			41,253			51,769
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	78,775		$	94,492		$	98,103

See accompanying Notes to Condensed Consolidated Financial Statements.

3

dELiA*s, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	For the Thirteen Weeks Ended						For the Thirty-Nine Weeks  Ended
	November 2, 2013			October 27, 2012			November 2, 2013			October 27, 2012
NET REVENUES	$	32,998		$	46,399		$	101,342		$	127,421
Cost of goods sold		28,740			31,200			81,784			86,620
GROSS PROFIT		4,258			15,199			19,558			40,801
Selling, general and administrative expenses		17,187			18,420			51,880			54,287
Impairment of long-lived assets		3,251			—			3,251			—
Other operating income		(152	)		(1,284	)		(467	)		(1,740	)
TOTAL OPERATING EXPENSES		20,286			17,136			54,664			52,547
OPERATING LOSS		(16,028	)		(1,937	)		(35,106	)		(11,746	)
Interest expense		3,240			159			4,412			477
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(19,268	)		(2,096	)		(39,518	)		(12,223	)
Provision (benefit) for income taxes		21			(34	)		74			(402	)
LOSS FROM CONTINUING OPERATIONS		(19,289	)		(2,062	)		(39,592	)		(11,821	)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX		(62	)		65			(1,078	)		937
NET LOSS	$	(19,351	)	$	(1,997	)	$	(40,670	)	$	(10,884	)
BASIC AND DILUTED LOSS PER SHARE:
LOSS FROM CONTINUING OPERATIONS	$	(0.40	)	$	(0.06	)	$	(1.06	)	$	(0.38	)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS	$	(0.00	)	$	0.00		$	(0.03	)	$	0.03
NET LOSS PER SHARE	$	(0.40	)	$	(0.06	)	$	(1.09	)	$	(0.35	)
WEIGHTED AVERAGE BASIC AND DILUTED COMMON SHARES OUTSTANDING		48,799,333			31,355,085			37,417,287			31,334,288

See accompanying Notes to Condensed Consolidated Financial Statements.

4

dELiA*s, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the  Thirty-Nine Weeks Ended
	November 2, 2013			October 27, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(40,670	)	$	(10,884	)
(Loss) income from discontinued operations		(1,078	)		937
Loss from continuing operations		(39,592	)		(11,821	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,669			7,372
Deferred financing fees		745			163
Stock-based compensation		1,617			516
Interest on conversion of notes payable to equity		2,370			—
Impairment of long-lived assets		3,251			—
Changes in operating assets and liabilities:
Inventories		(1,053	)		(7,546	)
Prepaid catalog costs and other assets		(2,299	)		(1,455	)
Restricted cash		(10,811	)		—
Income taxes payable		81			180
Accounts payable, accrued expenses and other liabilities		(8,830	)		(5,897	)
Total adjustments		(8,260	)		(6,667	)
Net cash used in operating activities of continuing operations		(47,852	)		(18,488	)
Net cash used in operating activities of discontinued operations		(1,328	)		(262	)
NET CASH USED IN OPERATING ACTIVITIES		(49,180	)		(18,750	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(2,450	)		(3,757	)
Net cash used in investing activities of continuing operations		(2,450	)		(3,757	)
Net cash provided by investing activities of discontinued operations		2,591			—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		141			(3,757	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs		13,926			—
Purchase of treasury stock		(72	)		—
Proceeds from the exercise of stock options		33			—
Proceeds from bank borrowings		1,233			—
Payment of deferred financing fees		(1,007	)		—
Sales of notes payable and conversion to equity, net of issuance costs		19,980			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		34,093			—
NET DECREASE IN CASH AND CASH EQUIVALENTS		(14,946	)		(22,507	)
CASH AND CASH EQUIVALENTS, beginning of period		16,812			28,426
CASH AND CASH EQUIVALENTS, end of period	$	1,866		$	5,919
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for interest	$	2,296		$	392
Cash paid during the period for taxes	$	85		$	149
Capital expenditures incurred not yet paid	$	153		$	335

See accompanying Notes to Condensed Consolidated Financial Statements.

5

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In this Quarterly Report on Form 10-Q, when we refer to “Alloy, LLC” we are referring to Alloy, LLC (formerly Alloy, Inc.), our former parent corporation, and when we refer to “Alloy” we are referring to the Alloy-branded direct marketing and merchandising business that we formerly operated. Similarly, when we refer to “dELiA*s” we are referring to the dELiA*s-branded direct marketing, merchandising and retail store business that we operate, and when we refer to “dELiA*s, Inc.,” the “Company,” “we,” “us,” or “our,” we are referring to dELiA*s, Inc. and its subsidiaries. When we refer to the “Spinoff,” we are referring to the December 19, 2005 spinoff of the outstanding common shares of dELiA*s, Inc. to the Alloy, LLC shareholders.

1. Business and Basis of Presentation

We are a multi-channel retail company primarily marketing to teenage girls. We generate revenue by selling to consumers through the integration of our e-commerce website, direct mail catalogs and our mall-based retail stores. Through our e-commerce web pages and catalogs, we sell primarily our own proprietary brand products and some name brand products, directly to consumers, including apparel, accessories and footwear. Our mall-based retail stores derive revenue primarily from the sale of apparel and accessories.

The accompanying unaudited condensed consolidated financial statements (the “financial statements”) of dELiA*s, Inc. at November 2, 2013 and October 27, 2012 and for the thirteen and thirty-nine weeks ended November 2, 2013 and October 27, 2012 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain notes and other information have been condensed or omitted from the financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the most recent dELiA*s, Inc. Annual Report on Form 10-K and the financial statements contained in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on September 13, 2013. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet at February 2, 2013 and related information presented in the footnotes have been derived from audited consolidated statements at that date. All financial results in these Notes to Condensed Consolidated Financial Statements are for continuing operations only unless otherwise stated.

The Company’s fiscal year ends on the Saturday closest to January 31st. References to “fiscal 2012” represent the 53-week period ended February 2, 2013 and references to “fiscal 2013” represent the 52-week period ending February 1, 2014.

The financial statements include the accounts of dELiA*s, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Discontinued Operations and Assets Held for Sale

On June 4, 2013, A Merchandise, LLC (formerly Alloy Merchandise, LLC), a wholly-owned subsidiary of the Company (“Alloy Merchandising”), and the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with HRSH Acquisitions LLC d/b/a Alloy Apparel and Accessories (“Buyer”) and concurrently closed the transaction under the Asset Purchase Agreement. Subject to the terms and conditions of the Asset Purchase Agreement, Alloy Merchandising sold certain assets and transferred certain related liabilities associated with its Alloy business to Buyer, and Buyer purchased such assets and assumed certain related liabilities. Upon closing of the transaction, the Company received $3.7 million in cash proceeds, subject to adjustment as provided in the Asset Purchase Agreement, and the Buyer assumed $3.3 million in liabilities. The final purchase price was approximately $3.4 million. The loss on sale from this transaction was immaterial. The Company also agreed to provide certain transition services to Buyer, for up to one year, at specified rates following the consummation of the transaction. The financial impact of the transitional services is not expected to be material.

6

Accordingly, the results of the Company’s former Alloy business have been reported as discontinued operations for all periods presented. In discontinued operations, the Company has reversed its allocation of shared services to the Alloy business and has charged discontinued operations with the administrative and distribution expenses that were attributable to Alloy.

Loss from discontinued operations, net of taxes, was $0.1 million and $1.1 million for the thirteen and thirty-nine weeks ended November 2, 2013, respectively, and income from discontinued operations, net of tax, was $0.1 million and $0.9 million for the thirteen and thirty-nine weeks ended October 27, 2012, respectively.

Discontinued operations were comprised of (in thousands):

	For the Thirteen Weeks Ended						For the Thirty-Nine Weeks Ended
	November 2,			October 27,			November 2,			October 27,
	2013			2012			2013			2012
Net revenues	$	—		$	9,324		$	12,586		$	29,056
Cost of goods sold		—			5,644			8,445			17,510
Gross profit		—			3,680			4,141			11,546
Selling, general and administrative expenses		61			4,117			5,300			11,217
Other operating income		—			(538	)		(82	)		(1,097	)
Total expenses		61			3,579			5,218			10,120
Operating (loss) income		(61	)		101			(1,077	)		1,426
Provision for income taxes		1			36			1			489
(Loss) income from discontinued operations, net of income taxes	$	(62	)	$	65		$	(1,078	)	$	937

Assets and liabilities of discontinued operations held for sale included the following (in thousands):

	November 2, 2013		February 2, 2013		October 27, 2012
Inventories, net	$	—	$	5,704	$	6,578
Prepaid catalog costs		—		690		1,389
Other current assets		—		415		341
Total current assets		—		6,809		8,308
Property and equipment, net		—		690		—
Total assets	$	—	$	7,499	$	8,308
Accounts payable		—		4,236		3,547
Accrued expenses		—		530		569
Customer liabilities		—		400		535
Total liabilities	$	—	$	5,166	$	4,651

2. Recent Accounting Pronouncements

Recently Adopted Standard

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”), which amends FASB Accounting Standards Codification™ (“ASC”) Topic 350, Intangibles—Goodwill and Other, to permit an entity to first assess qualitative factors to determine if it is more likely than not that an indefinite-lived intangible asset is impaired and whether it is necessary to perform the impairment test of comparing the carrying amount with the recoverable amount of the indefinite-lived intangible asset. This guidance is effective for interim and annual impairment tests performed in fiscal years beginning after September 15, 2012, with early adoption permitted. The Company adopted ASU 2012-02 in the first quarter of fiscal 2013 with no impact on its condensed consolidated financial statements.

7

Recently Issued Standards

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. ASU 2013-11 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date; however, retrospective application is permitted. The Company is in the process of evaluating ASU 2013-11 and does not expect that it will have a significant impact on its consolidated financial statements.

3. Fair Value of Financial Instruments

We follow the guidance in ASC Topic 820, Fair Value Measurement Disclosures (“ASC 820”) as it relates to financial and non-financial assets and liabilities. Our non-financial assets, which include property and equipment, and indefinite-lived intangibles, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and we are required to evaluate the non-financial asset for impairment, a resulting asset impairment would require that the non-financial asset be recorded at fair value. ASC 820 prioritizes inputs used in measuring fair value into a hierarchy of three levels: Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2—inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of our financial instruments, including cash and cash equivalents, receivables, payables and bank loan payable approximated fair value due to the short maturity of these financial instruments.

There was a $3.3 million impairment charge related to underperforming stores in the thirteen and thirty-nine week periods ended November 2, 2013. There were no impairment charges for the thirteen and thirty-nine week periods ended October 27, 2012.

4. Cash and Cash Equivalents

Cash and cash equivalents consist of cash, credit card receivables and highly liquid investments with original maturities of three months or less. Credit card receivable balances included in cash and cash equivalents as of November 2, 2013, February 2, 2013 and October 27, 2012 were approximately $0.7 million, $1.4 million and $1.6 million, respectively.

5. Inventories

Inventories, which consist of finished goods, including certain capitalized expenses, are stated at the lower of cost (first-in, first-out method) or market value. Inventories may include items that have been written down to our best estimate of their net realizable value. Our decisions to write-down and establish valuation allowances against our merchandise inventories are based on our current rate of sale, the age of the inventory and other factors. Actual final sales prices to customers may be higher or lower than our estimated sales prices and could result in a fluctuation in gross profit in subsequent periods.

6. Net Income (Loss) Per Share

We have outstanding restricted stock grants that contain non-forfeitable rights to dividends (whether paid or unpaid) which qualify these shares as participating securities, requiring them to be included in the computation of earnings per share pursuant to the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. In periods of loss, the unvested restricted stock grants are not considered participating securities as they are not obligated to fund losses. Basic earnings per common share are calculated by dividing earnings allocated to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of unvested restricted stock not classified as participating securities and common shares issuable upon exercise of stock options or warrants. The difference between reported basic and diluted weighted-average common shares results from the assumption that all dilutive stock options and warrants outstanding were exercised and all outstanding restricted shares have vested as determined by applying the “treasury stock” method. For all periods presented in which there were losses, fully diluted losses per share do not differ from basic earnings per share.

8

The total number of potential common shares with an anti-dilutive impact, excluded from the calculation of diluted net (loss) income per share, is detailed in the following table:

	For Thirteen Weeks Ended				For Thirty-Nine Weeks Ended
	November 2, 2013		October 27, 2012		November 2, 2013		October 27, 2012
	(in thousands)
Stock options		3,572		3,122		3,558		3,122
Warrants		215		215		215		215
Restricted stock		1,576		329		1,650		350
Total		5,363		3,666		5,423		3,687

7. Property and Equipment, net

Property and equipment, net, consisted of the following (in thousands):

	November 2, 2013			February 2, 2013			October 27, 2012
Construction in progress	$	661		$	789		$	1,139
Computer equipment		13,875			13,197			13,120
Machinery and equipment		99			99			125
Office furniture		18,306			18,145			20,739
Leasehold improvements		53,170			52,275			56,004
Building		7,559			7,559			7,559
Land		501			500			501
		94,171			92,564			99,187
Less: accumulated depreciation and amortization		(65,760	)		(56,457	)		(60,847	)
	$	28,411		$	36,107		$	38,340

Depreciation and amortization expense related to property and equipment was approximately $2.1 million and $6.7 million for the thirteen and thirty-nine weeks ended November 2, 2013, respectively, and $2.5 million and $7.4 million for the thirteen and thirty-nine week periods ended October 27, 2012, respectively.

Based upon our impairment analysis of long-lived assets, we recognized impairment charges of approximately $3.3 million for the thirteen and thirty-nine weeks ended November 2, 2013, related to underperforming stores. There were no long-lived asset impairment charges for the thirteen and thirty-nine weeks ended October 27, 2012.

8. Credit Facility

The Company and certain of its wholly-owned subsidiaries were parties to a credit agreement (the “GE Agreement”) with General Electric Capital Corporation (“GE Capital”), as a lender and as agent for the financial institutions from time to time party to the GE Agreement (together with GE Capital in its capacity as a lender, the “GE Lenders”). The GE Agreement provided for a total aggregate commitment of the GE Lenders of $25 million, including a $15 million sublimit for the issuance of letters of credit and a swingline loan facility of $5 million. The GE Agreement had a term of five years and was to mature on May 26, 2016. The obligations of the borrowers under the GE Agreement were secured by substantially all property and assets of the Company and certain of its subsidiaries.

The GE Agreement called for the payment by the Company of a fee of 0.375% per annum on the average unused portion of the GE Agreement, a letter of credit fee calculated using a per annum rate equal to the Applicable Margin with respect to letters of credit (as defined in the GE Agreement) multiplied by the average outstanding face amount of letters of credit issued under the GE Agreement, as well as other customary fees and expenses. Interest accrued on the outstanding principal amount of the revolving credit loans at an annual rate equal to LIBOR (as defined in the GE Agreement) or the Base Rate (as defined in the GE Agreement), plus an applicable margin which was subject to periodic adjustment based on average excess availability under the GE Agreement. Interest on each swingline loan was calculated using the Base Rate. The GE Agreement did not contain any financial covenants with which the Company or any of its subsidiaries or affiliates had to comply during the term of the GE Agreement.

9

The GE Agreement contained customary representations and warranties, as well as customary covenants that, among other things, restricted the ability of the Company and its subsidiaries to incur liens, consolidate or merge with other entities, incur certain additional indebtedness and guaranty obligations, pay dividends or make certain other restricted payments. The GE Agreement also contained customary events of default, including payment defaults, breaches of representations and warranties and covenants, cross defaults to other material indebtedness, and bankruptcy and insolvency matters.

On June 14, 2013, the Company and certain of its wholly-owned subsidiaries entered into a new credit agreement (the “Credit Agreement”) with Salus Capital Partners, LLC (“Salus”), as a lender and as agent for the financial institutions from time to time party to the Credit Agreement (together with Salus in its capacity as a lender, the “Lenders”). The Credit Agreement provides for a total aggregate commitment of the Lenders of $30 million. The Credit Agreement has a term of four years and matures on June 14, 2017. The obligations of the borrowers under the Credit Agreement are secured by substantially all property and assets of the Company and certain of its subsidiaries.

The Credit Agreement calls for the payment by the Company of a fee of 0.375% per annum on the average unused portion of the Credit Agreement as well as other customary fees and expenses. Interest accrues on the outstanding principal amount of the revolving credit loans at an annual rate equal to the greater of (a) the Base Rate (as defined in the Credit Agreement) plus 3% and (b) 6.25%. The Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates has to comply during the term of the Credit Agreement.

The Credit Agreement contains customary representations and warranties, as well as customary covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur liens, consolidate or merge with other entities, incur certain additional indebtedness and guaranty obligations, pay dividends or make certain other restricted payments. The Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties and covenants, cross defaults to other material indebtedness, and bankruptcy and insolvency matters.

Concurrently with the execution of the Credit Agreement, the GE Agreement was terminated and replaced with a letter of credit agreement with GE Capital (“Letter of Credit Agreement”). The Letter of Credit Agreement provides for a maximum aggregate face amount of letters of credit that may be issued, to be the lesser of (a) $15 million or (b) an amount equal to a specified percentage of cash collateral held by GE Capital. The cash collateral is required in an amount equal to 105% of the face amount of outstanding letters of credit issued. The Letter of Credit Agreement calls for a payment by the Company of a fee of 0.375% per annum on the average unused portion of the Letter of Credit Agreement, a letter of credit fee of 1.75% per annum on the average outstanding face amount of letters of credit issued under the Letter of Credit Agreement, as well as other customary fees and expenses. None of the other assets or properties of the Company, or any of its subsidiaries or affiliates, were pledged as collateral for these obligations. The Letter of Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates has to comply during the term of the Letter of Credit Agreement.

As of November 2, 2013, availability under the Credit Agreement was $20.1 million, net of $1.2 million in borrowings. In addition, the Company had $10.3 million in letters of credit outstanding under the Letter of Credit Agreement and the cash collateral required to secure the Company’s obligations under the Letter of Credit Agreement was approximately $10.8 million, which is shown as restricted cash on the accompanying condensed consolidated balance sheet.

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

	November 2,		February 2,		October 27,
	2013		2013		2012
Credits due to customers	$	3,691	$	4,433	$	4,455
Accrued payroll, bonus, taxes and withholdings		1,450		902		526
Allowance for sales returns		312		541		567
Short-term tenant allowances		1,012		887		882
Accrued sales tax		216		487		543
Accrued capital expenditures		82		305		—
Other accrued expenses		3,134		3,613		3,508
	$	9,897	$	11,168	$	10,481

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10. Deferred Credits and Other Long-Term Liabilities

Deferred credits and other long-term liabilities consist primarily of long-term portions of deferred rent and tenant allowances. We occupy our retail stores and home office under operating leases generally with terms of seven to ten years. Some of these retail store leases have early cancellation clauses which permit the lease to be terminated if certain sales levels are not met in specific periods. Most of the store leases require payment of a specified minimum rent, plus a contingent rent based on a percentage of the store’s net sales in excess of a specified threshold. Most of the lease agreements have defined escalating rent provisions, which are reported as a deferred rent liability and expensed on a straight-line basis over the term of the related lease, commencing with date of possession. This includes any lease renewals deemed to be probable. In addition, we receive cash allowances from our landlords on certain properties and have reported these amounts as tenant allowances which are amortized to rent expense over the term of the lease, also commencing with date of possession. Included in deferred credits at November 2, 2013, February 2, 2013 and October 27, 2012 was approximately $4.4 million, $5.0 million, and $5.4 million, respectively, of deferred rent liability, and approximately $3.4 million, $3.5 million, and $3.9 million, respectively, of tenant allowances.

11. Share-Based Compensation

Under the dELiA*s, Inc. Amended and Restated 2005 Stock Incentive Plan, we may grant incentive stock options, nonqualified stock options and restricted stock to employees (including officers), non-employee directors and consultants. Grants for stock options vest and become exercisable monthly or annually in equal installments over a three- to four-year period and expire ten years after the grant date, while restricted stock vests and becomes exercisable monthly or annually, in equal installments over a three-year period.

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation-Stock Compensation, which requires share-based compensation for equity awards to be measured based on estimated fair values at the date of grant.

The Company recorded stock-based compensation expense (including expense for restricted stock) of $1.0 million and $1.6 million for thirteen and thirty-nine weeks ended November 2, 2013, respectively, and $0.2 million and $0.5 million for the thirteen and thirty-nine weeks ended October 27, 2012, respectively, related to employee and non-employee directors share-based awards and such expense is included in selling, general and administrative expense in our consolidated statements of operations. Included in the thirteen and thirty-nine weeks ended November 2, 2013 was stock-based compensation expense related to the conversion of the notes payable to equity as more fully disclosed in footnote 12.

Stock Options

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of stock option grants and expected future stock price volatility over the expected term.

The per share weighted average fair value of stock options granted during the thirty-nine weeks ended November 2, 2013 was $0.60. The fair value of each option grant is estimated on the date of grant with the following weighted average assumptions:

	November 2, 2013
Dividend yield		—
Risk-free interest rate		1.7	%
Expected life (in years)		6.25
Historical volatility		62	%

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A summary of the Company’s stock option activity and weighted average exercise prices is as follows:

				Weighted-
				Average
				Exercise Price
	Options			per Option
Options outstanding as of February 2, 2013		3,050,086		$	3.84
Options granted		2,363,750			0.99
Options exercised		(45,554	)		0.72
Options cancelled or expired		(1,840,959	)		3.88
Outstanding as of November 2, 2013		3,527,323		$	1.95
Exercisable as of November 2, 2013		1,162,636		$	3.68

As of November 2, 2013, there was approximately $1.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted average period of 1.6 years.

Restricted Stock

The fair value of restricted stock awards is calculated based on the stock price on the date of the grant. The weighted average grant date fair values for restricted stock issued during the thirty-nine weeks ended November 2, 2013 was $0.91.

A summary of the Company’s restricted stock activity and weighted average grant date fair values is as follows:

	Restricted Stock
				Weighted Average
				Grant Date
	Shares			Fair Value
Outstanding at February 2, 2013		448,541		$	1.15
Granted		1,400,000			0.91
Vested		(155,585	)		0.76
Forfeited		(187,564	)		0.90
Outstanding at November 2, 2013		1,505,392		$	1.00

As of November 2, 2013, there was approximately $1.2 million of total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.6 years.

12. Stockholders’ equity

Rights Offering

On December 30, 2005, we filed a prospectus under which we distributed to persons who were holders of our common stock on December 28, 2005 transferable rights to purchase up to an aggregate of 2,691,790 shares of our common stock at a cash subscription price of $7.43 per share. The rights offering was made to fund the costs and expenses of our retail store expansion plan and to provide funds for general corporate purposes following the Spinoff. MLF Investments, LLC (“MLF”), which was controlled by Matthew L. Feshbach, our former Chairman of the Board, agreed to backstop the rights offering, meaning MLF agreed to purchase all shares of our common stock that remained unsold upon completion of the rights offering at the same $7.43 subscription price per share. The rights offering was completed in February 2006 with $20 million of gross proceeds. The stockholders exercised subscription rights to purchase 2,040,570 shares of dELiA*s, Inc. common stock, of the 2,691,790 shares offered in the rights offering, raising a total of $15.2 million. On February 24, 2006, MLF purchased the remaining 651,220 shares for a total of $4.8 million. MLF received as compensation for its backstop commitment a nonrefundable fee of $50,000 and ten-year warrants to purchase 215,343 shares of our common stock at an exercise price of $7.43 per share. The warrants had a grant date fair value of approximately $0.9 million and were recorded as a cost of raising capital. The MLF warrants were subsequently split so that MLF Offshore Portfolio Company, LP owned warrants to purchase 206,548 shares of our common stock and MLF Partners 100, LP owned warrants to purchase 8,795 shares of our common stock. Such warrants were distributed on a pro-rata basis to investors as part of the winding up of operations of MLF and its affiliated funds.

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Shelf Registration Statement

On June 20, 2012, the Company filed a Registration Statement on Form S-3 using a “shelf” registration process, which became effective on September 7, 2012. Under this shelf registration, the Company may issue up to $30 million of its common stock, preferred stock, warrants, rights, units or preferred stock purchase rights in one or more offerings, in amounts, at prices, and terms that will be determined at the time of the offering. Because the publicly-traded float of the Company’s shares of common stock was less than $75 million at the time of the filing of the shelf registration, the Company was restricted to issuing securities registered under the shelf registration equal to no more than one-third of the value of its public float in any consecutive 12- month period until the Company’s public float exceeded $75 million. On October 24, 2013, the Company’s public float exceeded $75 million, thus removing the restriction in connection with any issuances of securities registered under the shelf registration thereafter. However, the Company is required to recompute its public float at the time the Company files its Annual Report on Form 10-K and each other time it files an amendment to its Registration Statement on Form S-3. In the event that the Company’s public float as of the date of the filing of such Annual Report or amendment is less than $75 million, the one-third cap again will be applicable.

On July 31, 2013, the Company closed on an underwritten public offering of 15,025,270 shares of its common stock at an offering price of $1.05 per share, resulting in gross proceeds of $15.8 million pursuant to the shelf registration statement. The Company used the net proceeds, after issuance costs, of $13.9 million to repay a portion of the outstanding amounts under the existing revolving Credit Agreement.

Private Placement of Convertible Notes

Concurrently with the closing of the underwritten public offering mentioned above, the Company sold $21.8 million in principal amount of 7.25% convertible notes in a private placement. The convertible notes were scheduled to automatically convert into 20,738,100 shares of dELiA*s common stock immediately upon ratification by the Company’s stockholders of the issuance of the convertible notes and approval by the Company’s stockholders of the issuance of the 20,738,100 shares of common stock into which the convertible notes were automatically convertible. The Company could not use the proceeds from the sale of the convertible notes until receiving stockholder approval. The proceeds from the sale of the convertible notes were held in an interest bearing deposit account at a financial institution. As collateral security for our obligations under the convertible notes, we granted to the lead investor in the private placement, on behalf of itself and the other investors, a continuing, first priority, perfected, security interest in this deposit account, all funds in the account, and all cash and non-cash proceeds of the account. The security interest in this collateral remained in effect until all of our obligations to the holders of the convertible notes were fully paid and satisfied. On October 24, 2013, the Company’s stockholders ratified the issuance of the convertible notes and approved the issuance of the shares of common stock into which the convertible notes were automatically converted. The Company used the net proceeds, after costs and expenses, of $20.0 million for the repayment of outstanding amounts under its Credit Agreement with Salus.

Since the market price of the Company’s common stock on the date of conversion exceeded the $1.05 conversion price, the Company recorded $2.9 million in non-cash charges. A $0.5 million charge related to the participation of certain insiders in the convertible note offering was included in stock-based compensation expense, while the remaining $2.4 million was included in interest expense.

13. Interest Expense

Interest expense for the thirteen weeks ended November 2, 2013 related to costs associated with our Credit Agreement and Letter of Credit Agreement, and for the thirty-nine weeks ended November 2, 2013 related to costs associated with our Credit Agreement, Letter of Credit Agreement and GE Agreement. Interest expense for the thirteen and thirty-nine weeks ended October 27, 2012 related to costs associated with our GE Agreement. Interest expense for the thirteen and thirty-nine weeks ended November 2, 2013 was $3.2 million and $4.4 million, respectively, which included interest expense related to the conversion of the notes payable to equity (see note 12). Interest expense for the thirteen and thirty-nine weeks ended October 27, 2012 was $0.2 million and $0.5 million, respectively.

14. Spinoff Related Transactions

We recognize other revenues that consist primarily of advertising provided for third parties in our catalogs, on our e-commerce web pages, in our outbound packages, and in our retail stores pursuant to specific pricing arrangements with Alloy, LLC. Alloy, LLC originally arranged these advertising services on our behalf through a Media Services Agreement (the “Original Agreement”) entered into in connection with the Spinoff. Revenue under these arrangements was recognized, net of commissions and agency fees, when the underlying advertisement is published or otherwise delivered pursuant to the terms of each arrangement.

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On November 16, 2010, the Company entered into an Amended and Restated Media Services Agreement (the “A/R Media Services Agreement”) with Alloy, LLC. The A/R Media Services Agreement replaces the Original Agreement, which expired by its terms on December 19, 2010, and became effective on December 20, 2010, upon expiration of the Original Agreement. The A/R Media Services Agreement provides, among other things, that Alloy, LLC will serve as our exclusive sales agent for the purpose of providing the following media and marketing related services to the Company and its subsidiaries: license of websites, internet advertising, direct segment upsell arrangements, catalog advertisements and insertions, sampling and in-store promotions, and database collection and marketing. The A/R Media Services Agreement expires on December 20, 2015. Effective May 6, 2011, the Company and Alloy, LLC amended the A/R Media Services Agreement to remove the sampling and in-store promotion services therefrom. In addition, as part of the transaction described under Note 1 “Discontinued Operations and Assets Held for Sale,” we further amended the A/R Media Services Agreement to assign the provisions of such agreement related to our former Alloy business to the purchaser of such business.

Prior to the Spinoff, we and Alloy, LLC entered into the following agreements that were to define our ongoing relationships after the Spinoff: a distribution agreement, tax separation agreement, trademark agreement, information technology and intellectual property agreement, and an On Campus Marketing call center agreement. The On Campus Marketing call center agreement was terminated July 16, 2012. In addition, as part of the transaction involving the sale of our former CCS business, we entered into a Media Placement Services Agreement with Alloy, LLC pursuant to which we agreed to purchase specified media services over a three year period for $3.3 million. The Media Placement Services Agreement expired on February 1, 2012.

15. Income Taxes

The provision (benefit) for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events. The effective income tax rate for the thirteen and thirty-nine weeks ended November 2, 2013 was an expense of 0.1% and 0.2%, respectively, and for the thirteen and thirty-nine weeks ended October 27, 2012 was a benefit of 1.6% and 3.3%, respectively. The Company did not recognize any tax benefit in the thirteen and thirty-nine weeks ended November 2, 2013 for federal taxes; therefore, the valuation allowance increased accordingly. As a result, the effective income tax rate is lower than what would be expected if the federal statutory rate were applied to loss before income taxes. The Company recognized tax expense related to certain state taxes. In the thirteen and thirty-nine weeks ended October 27, 2012, the Company recorded a tax benefit for continuing operations offsetting the impact resulting from taxes charged to discontinued operations. The Company did not recognize any additional tax benefit in the thirteen and thirty-nine weeks ended October 27, 2012 for federal taxes; therefore, the valuation allowance increased accordingly.

The Company follows ASC 740-10, Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For this benefit to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes interest accrued for increases in the net liability for unrecognized income tax benefits in interest expense and any related penalties in income tax expense.

At November 2, 2013, the Company had a liability for unrecognized tax benefits of approximately $0.5 million all of which would favorably affect the Company’s effective tax rate if recognized. Included within the $0.5 million is an accrual of approximately $0.2 million for the payment of related interest and penalties. There were no material changes to the Company’s unrecognized tax benefits during the thirteen and thirty-nine weeks ended November 2, 2013. The Company does not believe there will be any material changes in the unrecognized tax positions over the next 12 months.

The Company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the fiscal years 2010, 2011 and 2012. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective returns. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is periodically subject to state income tax examinations.

16. Litigation

The Company is involved from time to time in litigation incidental to the business and, from time to time, the Company may make provisions for potential litigation losses. The Company follows ASC 450, Contingencies, when assessing pending or potential litigation. The Company believes that there is no claim or litigation pending, the outcome of which could have a material adverse effect on its financial condition or operating results.

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17. Segment Reporting

The Company’s executive management, being its chief operating decision makers, works together to allocate resources and assess the performance of the Company’s business. The Company’s executive management has historically managed the Company as two distinct operating segments—direct marketing and retail stores. Although offering customers substantially similar merchandise, the Company’s direct and retail operating segments currently have distinct management, marketing and operating strategies and processes.

The Company’s executive management assesses the performance of each operating segment based on operating income (loss), which is defined as net sales less the cost of goods sold and selling, general and administrative expenses both directly identifiable and allocable. For the direct segment, these operating costs, in addition to the cost of merchandise sold, primarily consist of catalog development, production and circulation costs, order processing costs, direct personnel costs and allocated overhead expenses. For the retail segment, these operating costs, in addition to the cost of merchandise sold, primarily consist of store selling expenses, direct labor costs and allocated overhead expenses. Allocated overhead expenses are costs associated with general corporate expenses and shared departmental services (e.g., executive, facilities, accounting, information technology, legal and human resources). Since the Alloy business is recorded as a discontinued operation, certain allocated overhead expenses have been reallocated to the remaining continuing businesses (see Note 1).

Operating segment assets are those directly used in or clearly allocable to an operating segment’s operations. For the retail segment, these assets primarily include inventory, fixtures and leasehold improvements. For the direct segment, these assets primarily include inventory and prepaid catalog costs, together with goodwill (excluding the Assets Held for Sale). Corporate and other assets include corporate headquarters and distribution facilities, shared technology infrastructure as well as corporate cash and cash equivalents and prepaid expenses. Operating segment depreciation and amortization and capital expenditures are recorded directly to each operating segment. Corporate and other depreciation and amortization and corporate and other capital expenditures are allocated to each operating segment. The accounting policies of the segments are the same as those described in our most recent Annual Report on Form 10-K, as amended. Reportable data for our operating segments were as follows:

	Direct Marketing		Retail Store
	Segment		Segment		Total
	(in thousands)
Total Assets
November 2, 2013	$	23,186	$	55,589	$	78,775
February 2, 2013		34,653		52,340		86,993
October 27, 2012		30,372		59,423		89,795
Capital Expenditures (accrual basis)
November 2, 2013—39 weeks ended	$	244	$	1,980	$	2,224
October 27, 2012—39 weeks ended		1,970		1,194		3,164
Depreciation and Amortization
November 2, 2013—39 weeks ended	$	539	$	6,130	$	6,669
October 27, 2012—39 weeks ended		527		6,845		7,372
Goodwill
November 2, 2013	$	—	$	—	$	—
February 2, 2013		—		—		—
October 27, 2012		4,462		—		4,462

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	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	November 2,			October 27,			November 2,			October 27,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Net revenues:
Retail store	$	24,304		$	35,172		$	73,499		$	92,753
Direct marketing		8,694			11,227			27,843			34,668
Total net revenue	$	32,998		$	46,399		$	101,342		$	127,421
Operating loss:
Retail store	$	(11,798	)	$	(1,717	)	$	(26,032	)	$	(9,739	)
Direct marketing		(4,230	)		(220	)		(9,074	)		(2,007	)
Total operating loss	$	(16,028	)	$	(1,937	)	$	(35,106	)	$	(11,746	)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q; in our audited financial statements and related notes contained in our most recent Annual Report on Form 10-K, as amended; and in our Current Report on Form 8-K filed with the Securities & Exchange Commission (“SEC”) on September 13, 2013. Descriptions of all documents incorporated by reference herein or included as exhibits hereto are qualified in their entirety by reference to the full text of such documents so incorporated or included. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth below in this Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Forward Looking Statements.”

On June 4, 2013, A Merchandise, LLC (formerly Alloy Merchandise, LLC), a wholly-owned subsidiary of the Company (“Alloy Merchandising”), and the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with HRSH Acquisitions LLC d/b/a Alloy Apparel and Accessories (“Buyer”) and concurrently closed the transaction under the Asset Purchase Agreement. Subject to the terms and conditions of the Asset Purchase Agreement, Alloy Merchandising sold certain assets and transferred certain related liabilities associated with its Alloy business to Buyer, and Buyer purchased such assets and assumed certain related liabilities. Upon closing of the transaction, the Company received $3.7 million in cash proceeds, subject to adjustment as provided in the Asset Purchase Agreement, and the Buyer assumed $3.3 million in liabilities. The final purchase price was approximately $3.4 million. The loss on sale from this transaction was immaterial. The Company also agreed to provide certain transition services to Buyer at specified rates following the consummation of the transaction.

Results of Operations and Financial Condition

Executive Summary

dELiA*s, Inc. is a multi-channel retailer of apparel, accessories and footwear, primarily marketing to teenage girls. Our merchandise assortment (which includes our own proprietary brand products and some name brand products), our e-commerce webpages, our catalogs, and our mall-based retail stores are designed to appeal directly to consumers. We reach our customers through our direct marketing segment, which consists of our e-commerce and catalog business, and our retail stores.

Our strategy is to improve upon our position as a direct marketing company, to increase productivity in our retail stores, and to carry out such strategy while controlling costs. In addition, our strategy includes strengthening the dELiA*s brand through alignment across all channels of our business while continuing extended offerings online and in our catalogs.

We expect that improved productivity in each segment of our business will be the key element of our overall growth strategy. Our focus is to improve productivity in our current retail store base, to invest in web-based marketing programs to drive additional traffic to our website and improve the productivity of catalogs distributed. As productivity improves and market conditions allow, we plan to expand the retail store base over the long term. In addition, as store performance and market conditions allow, we may plan on accelerating our growth in gross square footage. Should we accelerate our growth, we may need additional equity or debt financing.

Goals

We believe that focusing on our dELiA*s brand and implementing the following initiatives should lead to profitable growth and improved results from operations:

• leveraging our omni-channel platform in order to drive top line growth;

• implementing web, mobile and social media initiatives, while optimizing our catalog circulation;

• developing merchandise assortments that emphasize key categories more effectively and drive improved gross profit margins;

• employing focused inventory management strategies and creating inventory turn improvement;

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• improving productivity of the existing store base through heightened focus on the selling culture, with emphasis on increased customer conversion;

• leveraging our current expense infrastructure and taking additional operating costs out of the business, including monitoring and opportunistically closing underperforming stores; and

• expanding the dELiA*s retail store base over the long-term.

Key Performance Indicators

The following measurements are among the key business indicators that management reviews regularly to gauge the Company’s results:

• store metrics such as comparable store sales, sales per gross square foot, average retail price per unit sold, average transaction values, average units per transaction, traffic conversion rates and store contribution margin (defined as store gross profit less direct costs of operating the store);

• direct marketing metrics such as average order value and demand generated by book, with demand defined as the amount customers seek to purchase without regard to merchandise availability;

• web metrics such as unique site visits, carts opened and carts converted, and site conversion;

• fill rate, which is the percentage of any particular order we are able to ship for our direct marketing business, from available on-hand inventory or future inventory orders;

• gross profit;

• operating income;

• inventory turnover and average inventory per store; and

• cash flow and liquidity determined by the Company’s cash provided by operations.

The discussion below includes references to “comparable stores.” We consider a store comparable after it has been open for 15 full months without closure for more than seven consecutive days and whose square footage has not been expanded or reduced by more than 25% within that period. If a store is closed during a fiscal period, it is removed from the computation of comparable store sales for that fiscal period.

Our fiscal year is on a 52 or 53 week basis and ends on the Saturday nearest to January 31st. The fiscal year ended February 2, 2013 was a 53-week fiscal year, and the fiscal year ending February 1, 2014 will be a 52-week fiscal year.

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Consolidated Results of Operations

The following table sets forth our statements of operations data for the periods indicated, reflected as a percentage of revenues:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	November 2,			October 27,			November 2,			October 27,
	2013			2012			2013			2012
STATEMENTS OF OPERATIONS DATA:
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		87.1	%		67.2	%		80.7	%		68.0	%
Gross profit		12.9	%		32.8	%		19.3	%		32.0	%
Operating expenses:
Selling, general and administrative expenses		52.1	%		39.7	%		51.2	%		42.6	%
Impairment of long-lived assets		9.8	%		0.0	%		3.2	%		0.0	%
Other operating income		(0.5	%)		(2.7	%)		(0.5	%)		(1.4	%)
Total operating expenses		61.4	%		37.0	%		53.9	%		41.2	%
Operating loss		(48.5	%)		(4.2	%)		(34.6	%)		(9.2	%)
Interest expense		9.8	%		0.3	%		4.3	%		0.3	%
Loss before income taxes		(58.3	%)		(4.5	%)		(38.9	%)		(9.5	%)
Provision (benefit) for income taxes		0.1	%		(0.1	%)		0.1	%		(0.3	%)
Loss from continuing operations		(58.4	%)		(4.4	%)		(39.0	%)		(9.2	%)
(Loss) income from discontinued operations		(0.2	%)		0.1	%		(1.1	%)		0.7	%
Net loss		(58.6	%)		(4.3	%)		(40.1	%)		(8.5	%)

Thirteen Weeks Ended November 2, 2013 Compared to Thirteen Weeks Ended October 27, 2012

Revenues

Total Revenues. Total revenues decreased 28.9% to $33.0 million in the quarter ended November 2, 2013 from $46.4 million in the quarter ended October 27, 2012.

Direct Marketing Revenues. Direct marketing revenues decreased 22.6% to $8.7 million in the quarter ended November 2, 2013 from $11.2 million in the quarter ended October 27, 2012. Catalog circulation for the third quarter of fiscal 2013 decreased 16.3% compared to the prior year quarter predominantly due to a reduction in unprofitable circulation. In addition to the catalog circulation cuts, the decrease in direct marketing revenues was also attributable to lower average order values and decreases in the number of orders compared to the prior year.

Retail Store Revenues. Retail store revenues decreased 30.9% to $24.3 million in the quarter ended November 2, 2013 from $35.2 million in the quarter ended October 27, 2012. The retail store revenues decrease was primarily due to a comparable store sales decrease of 22.9% versus the prior year period driven by lower traffic. During the quarter ended November 2, 2013, we closed one store, ending the period with 102 stores in operation, as compared to 107 stores in operation as of October 27, 2012.

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The following table sets forth select operating data in connection with the revenues of our Company:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	November 2,		October 27,		November 2,			October 27,
	2013		2012		2013			2012
Channel net revenues (in thousands):
Retail	$	24,304	$	35,172	$	73,499		$	92,753
Direct (1)		8,694		11,227		27,843			34,668
Total net revenues	$	32,998	$	46,399	$	101,342		$	127,421
Catalogs Mailed (in thousands) (1)		3,533		4,221		12,727			12,612
Number of Stores:
Beginning of period		103		109		104			113
Stores opened		—		—		2	*		1	**
Stores closed		1		2		4	*		7	**
End of Period		102		107		102			107
Total Gross Sq. Ft. End of Period (in thousands)		393.3		410.8		393.3			410.8

* Totals include two stores that were closed and relocated to alternative sites in the same malls during the first nine months of fiscal 2013.

** Totals include one store that was closed and relocated to an alternative site in the same mall during the first nine months of fiscal 2012.

(1) Restated to exclude the Alloy business

Gross Profit

Total Gross Profit. Total gross profit for the quarter ended November 2, 2013 was $4.3 million or 12.9% of revenues as compared to $15.2 million or 32.8% of revenues in the quarter ended October 27, 2012.

Direct Marketing Gross Profit. Direct marketing gross profit for the quarter ended November 2, 2013 was $1.8 million or 21.2% of related revenues as compared to $4.8 million or 43.0% of related revenues for the quarter ended October 27, 2012. The decrease in the direct marketing gross profit included a 400 basis point reduction related to increased markdown and other inventory reserves and a 1,500 basis point reduction in merchandise margins in connection with clearing underperforming legacy inventory, as well as a 200 basis point reduction due to increased shipping and handling costs as a percent of revenues.

Retail Store Gross Profit. Retail store gross profit for the quarter ended November 2, 2013 was $2.4 million or 10.0% of related revenues as compared to $10.4 million or 29.5% of related revenues for the quarter ended October 27, 2012. The decrease in the retail store gross profit included a 500 basis point reduction related to increased markdown and other inventory reserves and a 600 basis point reduction in merchandise margins in connection with clearing underperforming legacy inventory, as well as an 800 basis point reduction due to the deleveraging of occupancy costs on lower revenues.

Selling, General and Administrative

Total Selling, General and Administrative. As a percentage of revenues, total selling, general and administrative expenses (“SG&A”) increased to 52.1% for the quarter ended November 2, 2013 from 39.7% for the quarter ended October 27, 2012. In total dollars, SG&A decreased to $17.2 million in the quarter ended November 2, 2013 from $18.4 million in the quarter ended October 27, 2012.

Direct Marketing SG&A. Direct marketing SG&A remained flat at $6.2 million in the quarters ended November 2, 2013 and October 27, 2012. As a percentage of related revenues, the direct marketing SG&A increased to 71.5% from 55.1% for the quarter ended October 27, 2012. Direct marketing SG&A expenses, in dollars, for fiscal 2013 included reduced selling, overhead and depreciation expenses compared to the prior year period, offset, in part, by increased stock-based compensation expense. The increase in direct marketing SG&A expenses, as a percent of related revenues, reflects the deleveraging of selling, overhead and depreciation expenses on lower revenues.

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Retail Store SG&A. Retail store SG&A decreased to $11.0 million in the quarter ended November 2, 2013 from $12.2 million in the quarter ended October 27, 2012. As a percentage of related revenues, retail store SG&A increased to 45.1% in the quarter ended November 2, 2013 from 34.8% for the quarter ended October 27, 2012. The reduction in retail store SG&A expenses, in dollars, reflects reduced selling, overhead and depreciation expenses offset, in part, by increased stock-based compensation expense. The increase in retail store SG&A expenses, as a percent of related revenues, reflects the deleveraging of selling, overhead and depreciation expenses on lower revenues.

Impairment of Long-Lived Assets

We recognized impairment charges on long-lived assets related to under-performing stores of $3.3 million in the third quarter of fiscal 2013. There were no impairment charges in the third quarter of fiscal 2012.

Other Operating Income

Other operating income, which represents breakage income, was $0.2 million for the quarter ended November 2, 2013 as compared to $1.3 million for the quarter ended October 27, 2012.

Operating Loss

Total Operating Loss. Our total operating loss was $16.0 million for the quarter ended November 2, 2013 as compared to an operating loss of $1.9 million for the quarter ended October 27, 2012.

Direct Marketing Operating Loss. Direct marketing operating loss was $4.2 million for the quarter ended November 2, 2013 as compared to an operating loss of $0.2 million for the quarter ended October 27, 2012, which included an incremental gift card breakage benefit of $1.0 million.

Retail Store Operating Loss. Retail store operating loss was $11.8 million for the quarter ended November 2, 2013 as compared to an operating loss of $1.7 million for the quarter ended October 27, 2012. The operating loss for the third quarter of fiscal 2013 included $3.3 million of non-cash impairment charges related to underperforming stores.

Conversion of Private Placement Notes

During the thirteen weeks ended November 2, 2013, the Company’s stockholders ratified the issuance of the 7.25% convertible notes and approved the issuance of the shares of common stock into which the convertible notes were automatically converted. Since the market price of the Company’s common stock on the date of conversion exceeded the $1.05 conversion price, the Company recorded $2.9 million in non-cash charges. A $0.5 million charge related to the participation of certain insiders in the convertible note offering was included in stock-based compensation expense, while the remaining $2.4 million was included in interest expense. The Company used the net proceeds, after costs and expenses, of $20.0 million for the repayment of outstanding amounts under its Credit Agreement with Salus.

Interest expense, net

We recorded interest expense of $3.2 million in the quarter ended November 2, 2013, which included $2.4 million of interest expense related to the aforementioned conversion of the notes payable into the Company’s common stock, compared to $0.2 million for the quarter ended October 27, 2012. Interest expense for the quarter ended November 2, 2013 related to costs associated with our Credit Agreement and Letter of Credit Agreement, and for the quarter ended October 27, 2012 related to costs associated with our GE Agreement.

Provision (benefit) for income taxes

We recorded an income tax provision of $21,000 for the quarter ended November 2, 2013 and an income tax benefit of $34,000 for the quarter ended October 27, 2012. The Company did not recognize any tax benefit in the thirteen weeks ended November 2, 2013 for federal taxes; therefore, the valuation allowance increased accordingly. The Company recorded a tax benefit for the quarter ended October 27, 2012 offsetting the impact resulting from taxes charged to discontinued operations. The Company did not recognize any additional tax benefit in the thirteen weeks ended October 27, 2012 for federal taxes; therefore, the valuation allowance increased accordingly.

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Thirty-Nine Weeks Ended November 2, 2013 Compared to Thirty-Nine Weeks Ended October 27, 2012

Revenues

Total Revenues. Total revenues decreased 20.5% to $101.3 million in the thirty-nine weeks ended November 2, 2013 from $127.4 million in the thirty-nine weeks ended October 27, 2012.

Direct Marketing Revenues. Direct marketing revenues decreased 19.7% to $27.8 million in the thirty-nine weeks ended November 2, 2013 from $34.7 million in the thirty-nine weeks ended October 27, 2012. The direct marketing revenues decrease was primarily due to lower average order values as well as a decrease in the number of orders compared to the prior year.

Retail Store Revenues. Retail store revenues decreased 20.8% to $73.5 million in the thirty-nine weeks ended November 2, 2013 from $92.8 million in the thirty-nine weeks ended October 27, 2012. The retail store revenues decrease was primarily due to a comparable store sales decrease of 15.4% versus the prior year period driven by lower traffic. During the thirty-nine weeks ended November 2, 2013, we relocated two stores and closed two stores, ending the period with 102 stores in operation, as compared to 107 stores in operation as of October 27, 2012.

Gross Profit

Total Gross Profit. Total gross profit for the thirty-nine weeks ended November 2, 2013 was $19.6 million or 19.3% of revenues as compared to $40.8 million or 32.0% of revenues in the thirty-nine weeks ended October 27, 2012.

Direct Marketing Gross Profit. Direct marketing gross profit for the thirty-nine weeks ended November 2, 2013 was $9.3 million or 33.3% of related revenues as compared to $15.4 million or 44.3% of related revenues for the thirty-nine weeks ended October 27, 2012. The decrease in direct marketing gross profit, as a percentage of related revenues, was primarily due to a 300 basis point increase in markdown and other inventory reserves, a 600 basis point reduction in merchandise margins in connection with underperforming legacy inventory, as well a 200 basis point reduction due to increased shipping and handling costs.

Retail Store Gross Profit. Retail store gross profit for the thirty-nine weeks ended November 2, 2013 was $10.3 million or 14.0% of related revenues as compared to $25.4 million or 27.4% of related revenues for the thirty-nine weeks ended October 27, 2012. The decrease in retail store gross profit, as a percentage of related revenues, was primarily due to a 600 basis point increase in markdown and other inventory reserves, a 340 basis point decrease related to merchandise margins in connection with underperforming legacy inventory, as well as a 400 basis point reduction due to the deleveraging of occupancy costs on lower revenues.

Selling, General and Administrative

Total Selling, General and Administrative. As a percentage of revenues, total SG&A increased to 51.2% for the thirty-nine weeks ended November 2, 2013 from 42.6% for the thirty-nine weeks ended October 27, 2012. In total dollars, SG&A decreased to $51.9 million in the thirty-nine weeks ended November 2, 2013 from $54.3 million in the thirty-nine weeks ended October 27, 2012.

Direct Marketing SG&A. Direct marketing SG&A decreased to $18.6 million in the thirty-nine weeks ended November 2, 2013 as compared to $18.8 million in the thirty-nine weeks ended October 27, 2012. As a percentage of related revenues, the direct marketing SG&A increased to 66.8% from 54.2% for the thirty-nine weeks ended October 27, 2012. Direct marketing SG&A expenses, in dollars, for fiscal 2013 included reduced selling and overhead expenses compared to the prior year period, offset, in part, by increased stock-based compensation expense. The increase in direct marketing SG&A, as a percentage of related revenues, reflects the deleveraging of selling, overhead and depreciation expenses on lower revenues.

Retail Store SG&A. Retail store SG&A decreased to $33.3 million in the thirty-nine weeks ended November 2, 2013 from $35.5 million in the thirty-nine weeks ended October 27, 2012. As a percentage of related revenues, retail store SG&A increased to 45.3% in the thirty-nine weeks ended November 2, 2013 from 38.3% for the thirty-nine weeks ended October 27, 2012. The reduction in retail store SG&A expenses, in dollars, reflects reduced selling, overhead and depreciation expenses offset, in part, by increased stock-based compensation expense. The increase in retail store SG&A, as a percentage of related revenues, reflects the deleveraging of selling, overhead and depreciation expenses on lower revenues.

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Impairment of Long-Lived Assets

We recognized impairment charges on long-lived assets related to under-performing stores of $3.3 million in the thirty-nine weeks ended November 2, 2013. There were no impairment charges in the thirty-nine weeks ended October 27, 2012.

Other Operating Income

Other operating income, which represents breakage income, was $0.5 million for the thirty-nine weeks ended November 2, 2013 as compared to $1.7 million in the thirty-nine weeks ended October 27, 2012.

Operating Loss

Total Operating Loss. Our total operating loss was $35.1 million for the thirty-nine weeks ended November 2, 2013 as compared to an operating loss of $11.7 million for the thirty-nine weeks ended October 27, 2012.

Direct Marketing Operating Loss. Direct marketing operating loss was $9.1 million for the thirty-nine weeks ended November 2, 2013 as compared to an operating loss of $2.0 million for the thirty-nine weeks ended October 27, 2012, which included an incremental gift card breakage benefit of $1.2 million.

Retail Store Operating Loss. Retail store operating loss was $26.0 million for the thirty-nine weeks ended November 2, 2013 as compared to an operating loss of $9.7 million for the thirty-nine weeks ended October 27, 2012. The retail store operating loss for the thirty-nine weeks ended November 2, 2013 included $3.3 million of non-cash impairment charges related to underperforming stores.

Conversion of Private Placement Notes

During the thirty-nine weeks ended November 2, 2013, the Company’s stockholders ratified the issuance of the 7.25% convertible notes and approved the issuance of the shares of common stock into which the convertible notes were automatically converted. Since the market price of the Company’s common stock on the date of conversion exceeded the $1.05 conversion price, the Company recorded $2.9 million in non-cash charges. A $0.5 million charge related to the participation of certain insiders in the convertible note offering was included in stock-based compensation expense, while the remaining $2.4 million was included in interest expense. The Company used the net proceeds, after costs and expenses, of $20.0 million for the repayment of outstanding amounts under its Credit Agreement with Salus.

Interest expense, net

We recorded interest expense of $4.4 million in the thirty-nine weeks ended November 2, 2013, which included $2.4 million of interest expense related to the aforementioned conversion of the notes payable into the Company’s common stock, compared to $0.5 million for the thirty-nine weeks ended October 27, 2012. Interest expense for the thirty-nine weeks ended November 2, 2013 related to costs associated with our Credit Agreement, Letter of Credit Agreement and GE Agreement, and for the thirty-nine weeks ended October 27, 2012 related to costs associated with our GE Agreement.

Provision (benefit) for income taxes

We recorded an income tax provision of $0.1 million for the thirty-nine weeks ended November 2, 2013 and an income tax benefit of $0.4 million for the thirty-nine weeks ended October 27, 2012. The Company did not recognize any tax benefit in the thirty-nine weeks ended November 2, 2013 for federal taxes; therefore, the valuation allowance increased accordingly. The Company recorded a tax benefit for the thirty-nine weeks ended October 27, 2012 offsetting the impact resulting from taxes charged to discontinued operations. The Company did not recognize any additional tax benefit in the thirty-nine weeks ended October 27, 2012 for federal taxes; therefore, the valuation allowance increased accordingly.

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Seasonality and Quarterly Fluctuation

Our historical revenues and operating results have varied significantly from quarter to quarter due to seasonal fluctuations in consumer purchasing patterns. Sales of apparel, accessories and footwear through our e-commerce web pages, catalogs and retail stores have generally been higher in our third and fourth fiscal quarters, which contain the key back-to-school and holiday selling seasons, than in our first and second fiscal quarters. Starting in the second fiscal quarter and through the beginning of our fourth fiscal quarter, our working capital requirements increase and have typically been funded by our cash balances as well as utilization of our credit agreements. Quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of store openings or closings and the relative proportion of our new stores to mature stores, fashion trends and changes in consumer preferences, calendar shifts of holiday or seasonal periods, changes in merchandise mix, timing of promotional events, fuel, postage and paper prices, general economic conditions, competition and weather conditions.

Liquidity and Capital Resources

Our cash requirements are primarily for working capital, operating expenses and capital expenditures including maintenance and remodeling for existing stores, information technology, distribution and other infrastructure related investments, and construction, fixture and inventory costs related to the opening of any new retail stores. Future capital requirements will depend on many factors, including, but not limited to, additional investments in infrastructure and technology, the pace of new store openings, the availability of suitable locations for new stores, the size of the specific stores we open and the nature of arrangements negotiated with landlords. In that regard, our net investment to open new stores is likely to vary significantly in the future.

Depending on results of operations for our current and future periods, as well as our ongoing expense reduction program, our current cash balances, cash flow from operations, and availability under our credit facilities may not be sufficient to meet our current cash requirements. If that is the case, we may be required to obtain additional equity or debt financing in the future. Such equity or debt financing may not be available to us when we need it or, if available, may not be on terms that will be satisfactory to us or may be dilutive to our stockholders. If financing is not available when required or is not available on acceptable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures. Any of these events could have a material and adverse effect on our business, results of operations and financial condition.

Credit Facility

The Company and certain of its wholly-owned subsidiaries were parties to a credit agreement (the “GE Agreement”) with General Electric Capital Corporation (“GE Capital”), as a lender and as agent for the financial institutions from time to time party to the GE Agreement (together with GE Capital in its capacity as a lender, the “GE Lenders”). The GE Agreement provided for a total aggregate commitment of the GE Lenders of $25 million, including a $15 million sublimit for the issuance of letters of credit and a swingline loan facility of $5 million. The GE Agreement had a term of five years and was to mature on May 26, 2016. The obligations of the borrowers under the GE Agreement were secured by substantially all property and assets of the Company and certain of its subsidiaries.

The GE Agreement called for the payment by the Company of a fee of 0.375% per annum on the average unused portion of the GE Agreement, a letter of credit fee calculated using a per annum rate equal to the Applicable Margin with respect to letters of credit (as defined in the GE Agreement) multiplied by the average outstanding face amount of letters of credit issued under the GE Agreement, as well as other customary fees and expenses. Interest accrued on the outstanding principal amount of the revolving credit loans at an annual rate equal to LIBOR (as defined in the GE Agreement) or the Base Rate (as defined in the GE Agreement), plus an applicable margin which was subject to periodic adjustment based on average excess availability under the GE Agreement. Interest on each swingline loan was calculated using the Base Rate. The GE Agreement did not contain any financial covenants with which the Company or any of its subsidiaries or affiliates had to comply during the term of the GE Agreement.

The GE Agreement contained customary representations and warranties, as well as customary covenants that, among other things, restricted the ability of the Company and its subsidiaries to incur liens, consolidate or merge with other entities, incur certain additional indebtedness and guaranty obligations, pay dividends or make certain other restricted payments. The GE Agreement also contained customary events of default, including payment defaults, breaches of representations and warranties and covenants, cross defaults to other material indebtedness, and bankruptcy and insolvency matters.

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On June 14, 2013, the Company and certain of its wholly-owned subsidiaries entered into a new credit agreement (the “Credit Agreement”) with Salus Capital Partners, LLC (“Salus”), as a lender and as agent for the financial institutions from time to time party to the Credit Agreement (together with Salus in its capacity as a lender, the “Lenders”). The Credit Agreement provides for a total aggregate commitment of the Lenders of $30 million. The Credit Agreement has a term of four years and matures on June 14, 2017. The obligations of the borrowers under the Credit Agreement are secured by substantially all property and assets of the Company and certain of its subsidiaries.

The Credit Agreement calls for the payment by the Company of a fee of 0.375% per annum on the average unused portion of the Credit Agreement as well as other customary fees and expenses. Interest accrues on the outstanding principal amount of the revolving credit loans at an annual rate equal to the greater of (a) the Base Rate (as defined in the Credit Agreement) plus 3% and (b) 6.25%. The Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates has to comply during the term of the Credit Agreement.

The Credit Agreement contains customary representations and warranties, as well as customary covenants that, among other things, restricts the ability of the Company and its subsidiaries to incur liens, consolidate or merge with other entities, incur certain additional indebtedness and guaranty obligations, pay dividends or make certain other restricted payments. The Credit Agreement also contains customary events of default, including payment defaults, breaches of representations and warranties and covenants, cross defaults to other material indebtedness, and bankruptcy and insolvency matters.

Concurrently with the execution of the Credit Agreement, the GE Agreement was terminated and replaced with a letter of credit agreement with GE Capital (“Letter of Credit Agreement”). The Letter of Credit Agreement provides for a maximum aggregate face amount of letters of credit that may be issued, to be the lesser of (a) $15 million or (b) an amount equal to a specified percentage of cash collateral held by GE Capital. The cash collateral is required in an amount equal to 105% of the face amount of outstanding letters of credit issued. The Letter of Credit Agreement calls for a payment by the Company of a fee of 0.375% per annum on the average unused portion of the Letter of Credit Agreement, a letter of credit fee of 1.75% per annum on the average outstanding face amount of letters of credit issued under the Letter of Credit Agreement, as well as other customary fees and expenses. None of the other assets or properties of the Company, or any of its subsidiaries or affiliates, were pledged as collateral for these obligations. The Letter of Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates has to comply during the term of the Letter of Credit Agreement.

As of November 2, 2013, availability under the Credit Agreement was $20.1 million, net of $1.2 million in borrowings. In addition, the Company had $10.3 million in letters of credit outstanding under the Letter of Credit Agreement and the cash collateral required to secure the Company’s obligations under the Letter of Credit Agreement was approximately $10.8 million, which is shown as restricted cash on the accompanying condensed consolidated balance sheet.

Other Sources of Capital

On June 20, 2012, the Company filed a Registration Statement on Form S-3 using a “shelf” registration process, which became effective on September 7, 2012. Under this shelf registration, the Company may issue up to $30 million of its common stock, preferred stock, warrants, rights, units or preferred stock purchase rights in one or more offerings, in amounts, at prices, and terms that will be determined at the time of the offering. Because the publicly-traded float of the Company’s shares of common stock was less than $75 million at the time of the filing of the shelf registration, the Company was restricted to issuing securities registered under the shelf registration equal to no more than one-third of the value of its public float in any consecutive 12- month period until the Company’s public float exceeded $75 million. On October 24, 2013, the Company’s public float exceeded $75 million, thus removing the restriction in connection with any issuances of securities registered under the shelf registration thereafter. However, the Company is required to recompute its public float at the time the Company files its Annual Report on Form 10-K and each other time it files an amendment to its Registration Statement on Form S-3. In the event that the Company’s public float as of the date of the filing of such Annual Report or amendment is less than $75 million, the one-third cap again will be applicable.

On July 31, 2013, the Company closed on an underwritten public offering of 15,025,270 shares of its common stock at an offering price of $1.05 per share, resulting in gross proceeds of $15.8 million pursuant to the shelf registration statement. The Company used the net proceeds, after issuance costs, of $13.9 million to repay a portion of the outstanding amounts under the existing revolving Credit Agreement.

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Concurrently with the closing of the underwritten public offering mentioned above, the Company sold $21.8 million in principal amount of 7.25% convertible notes in a private placement. The convertible notes were scheduled to automatically convert into 20,738,100 shares of dELiA*s common stock immediately upon ratification by the Company’s stockholders of the issuance of the convertible notes and approval by the Company’s stockholders of the issuance of the 20,738,100 shares of common stock into which the convertible notes were automatically convertible. The Company could not use the proceeds from the sale of the convertible notes until receiving stockholder approval. The proceeds from the sale of the convertible notes were held in an interest bearing deposit account at a financial institution. As collateral security for the Company’s obligations under the convertible notes, we granted to the lead investor in the private placement, on behalf of itself and the other investors, a continuing, first priority, perfected, security interest in this deposit account, all funds in the account, and all cash and non-cash proceeds of the account. The security interest in this collateral remained in effect until all of our obligations to the holders of the convertible notes were fully paid and satisfied. On October 24, 2013, the Company’s stockholders ratified the issuance of the convertible notes and approved the issuance of the shares of common stock into which the convertible notes were automatically converted. The Company used the net proceeds, after costs and expenses, of $20.0 million for the repayment of outstanding amounts under its Credit Agreement with Salus.

Operating Activities

Net cash used in operating activities of continuing operations was $47.9 million in the thirty-nine weeks ended November 2, 2013, compared with $18.5 million in the thirty-nine weeks ended October 27, 2012. The cash used in operating activities for the thirty-nine weeks ended November 2, 2013 was due primarily to funding the net operating losses, funding of restricted cash used to support our outstanding letters of credit, inventory purchases, and timing of vendor payments. The cash used in operating activities for the thirty-nine weeks ended October 27, 2012 was due primarily to funding the net operating losses, inventory purchases, and timing of vendor payments.

Investing Activities

Cash used in investing activities of continuing operations was $2.5 million in the thirty-nine weeks ended November 2, 2013, compared with $3.8 million in the thirty-nine weeks ended October 27, 2012. The cash used in investing activities for the thirty-nine weeks ended November 2, 2013 was primarily due to capital expenditures associated with the construction or remodeling of our retail stores, and for the thirty-nine weeks ended October 27, 2012, costs associated with our new website and systems to support our e-commerce business.

Financing Activities

Cash provided by financing activities of continuing operations was $34.1 million in the thirty-nine weeks ended November 2, 2013, compared with $-0- in the thirty-nine weeks ended October 27, 2012. The cash provided by financing activities for the thirty-nine weeks ended November 2, 2013 was primarily due to proceeds from the underwritten public offering, proceeds from the sale of convertible notes, and proceeds from bank borrowings offset by costs associated with the Credit Agreement.

Contractual Obligations

The following table presents our significant contractual obligations as of November 2, 2013 (in thousands):

	Payments Due By Period
			Less Than		1-3		3-5		More than
	Total		1 Year		Years		Years		5 Years
Contractual Obligations
Operating Lease Obligations (1)	$	73,029	$	16,393	$	30,817	$	17,291	$	8,528
Purchase Obligations (2)		14,303		14,303		—		—		—
Future Severance-Related Payments (3)		2,573		2,573		—		—		—
Total	$	89,905	$	33,269	$	30,817	$	17,291	$	8,528

(1) Our operating lease obligations are related to dELiA*s retail stores and our corporate headquarters.

(2) Our purchase obligations are primarily related to inventory commitments.

(3) Our future severance-related payments consist of severance agreements with existing employees.

We have long-term, non-cancelable operating lease commitments for retail stores and office space.

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Critical Accounting Policies

Management has determined that our most critical accounting policies are those related to revenue recognition, catalog costs, inventory valuation, indefinite-lived intangible assets and long-lived asset impairment, and income taxes. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K, as amended, for the fiscal year ended February 2, 2013.

Recent Accounting Pronouncements

Recently Adopted Standard

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”), which amends FASB Accounting Standards Codification™ (“ASC”) Topic 350, Intangibles—Goodwill and Other, to permit an entity to first assess qualitative factors to determine if it is more likely than not that an indefinite-lived intangible asset is impaired and whether it is necessary to perform the impairment test of comparing the carrying amount with the recoverable amount of the indefinite-lived intangible asset. This guidance is effective for interim and annual impairment tests performed in fiscal years beginning after September 15, 2012, with early adoption permitted. The Company adopted ASU 2012-02 in the first quarter of fiscal 2013 with no impact on its condensed consolidated financial statements.

Recently Issued Standards

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. ASU 2013-11 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date, however retrospective application is permitted. The Company is in the process of evaluating ASU 2013-11 and does not expect that it will have a significant impact on its consolidated financial statements.

Off-Balance Sheet Arrangements

We enter into letters of credit issued under the Letter of Credit Agreement to finance the acquisition of inventory from suppliers, to provide standby letters of credit to factors, landlords and other parties for business purposes, and for other general corporate purposes.

dELiA*s Brand, LLC, one of our subsidiaries, entered into a license agreement in 2003 with JLP Daisy, LLC that grants JLP Daisy, LLC exclusive rights (except for our rights) to use the dELiA*s trademarks to advertise, promote and market the licensed products, and to sublicense to permitted sublicensees the right to use the trademarks in connection with the manufacture, sale and distribution of the licensed products to approved wholesale customers.

We do not maintain any other off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Guarantees

We have no significant financial guarantees.

Inflation

In general, our costs, some of which include postage, paper, cotton, freight and energy costs, are affected by inflation and we may experience the effects of inflation in future periods. We believe, however, that such effects have not been material to us during the past.

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Forward-Looking Statements

In order to keep stockholders and investors informed of our future plans, this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains and, from time to time, other reports and oral or written statements issued by us may contain, statements expressing our expectations and beliefs regarding our future results, goals, performance and objectives that are or may be deemed to be “forward-looking statements” within the meaning of applicable securities laws. Our ability to do this has been fostered by the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. When used in this document, the words “anticipate,” “may,” “could,” “plan,” “project,” “should,” “would,” “predict,” “believe,” “estimate,” “expect” and “intend” and similar expressions are intended to identify such forward-looking statements.

Our forward-looking statements are based upon management’s current expectations and beliefs. They are subject to a number of known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements as a result of various factors, including, but not limited to, the impact of general economic and business conditions; our inability to realize the full value of merchandise currently in inventory as a result of underperforming sales; unanticipated increases in mailing and printing costs; the cost of additional overhead that may be required to expand our brands; changing customer tastes and buying trends; the inherent difficulty in forecasting consumer buying patterns and trends, and the possibility that any improvements in our product margins, or in customer response to our merchandise, may not be sustained; uncertainties related to our multi-channel model, and, in particular, the effects of shifting patterns of e-commerce or retail purchases versus catalog purchases; any significant variations between actual amounts and the amounts estimated for those matters identified as our critical accounting estimates or our other accounting estimates made in the preparation of our financial statements; as well as the various other risk factors set forth in our periodic and other reports filed with the SEC. Accordingly, while we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and we cannot assure you that our future results, levels of activity, performance or achievements will meet these expectations. You are urged to consider all such factors. Except as required by law, we assume no obligation for updating any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

From time to time, we have significant amounts of cash and cash equivalents on deposit at FDIC-insured financial institutions that are in excess of the federally insured limit, therefore, we cannot be assured that we will not experience losses with respect to those deposits. In addition, as of November 2, 2013, we did not hold any marketable securities and do not own any derivative financial instruments in our portfolio, thus we do not believe there is any material market risk exposure with respect to these items.

As of November 2, 2013, we had $1.2 million in borrowings. To the extent that we borrow under our credit facilities, we are exposed to market risk related to changes in interest rates. Loans under our credit facilities bear interest based at variable rates. Accordingly, any increase or decrease in the applicable interest rate on our borrowings under the credit facilities would increase or decrease interest expense and, accordingly, affect our net income or loss.

We are also indirectly exposed to market risk with respect to changes in the global price level of certain commodities used in the production of our products. Changes in the cost of fabrics or other raw materials used to manufacture our merchandise may be passed on to us, in whole or in part, in the form of changes in our cost of goods, and, if so, would affect our cost of goods and our results of operations.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, November 2, 2013, that our disclosure controls and procedures were effective to ensure both that (i) information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Exchange Act, and (ii) information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

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In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There were no changes in our internal control over financial reporting that occurred during the thirty-nine weeks ended November 2, 2013 identified in connection with the evaluation thereof by our Chief Executive Officer and Chief Financial Officer that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time in litigation incidental to our business and, from time to time, we may make provisions for potential litigation losses. The Company is not a party to any material pending legal proceedings.

The information set forth in Part I, Note 16 to the Notes to Condensed Consolidated Financial Statements contained on page 14 under the caption “Litigation” is incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended February 2, 2013, except for those set forth below.

We depend on our key personnel to operate our business, and we may not be able to hire enough additional management and other personnel to manage our growth. In addition, we may face risks associated with the transition of senior management.

Our performance is substantially dependent on the continued efforts of our executive officers and other key employees. The loss of the services of any of our executive officers or key employees could adversely affect our business. Additionally, we must continue to attract, retain and motivate talented management and other highly skilled employees to be successful. We must also hire and train store managers to support our retail expansion. We may be unable to retain our key employees or attract, assimilate and retain other highly qualified employees in the future. On March 30, 2013, we announced that Dyan Jozwick, President of dELiA*s Brand, resigned from the Company. On May 30, 2013, we announced that Tracy Gardner, our former Chief Creative Officer who joined the Company on May 1, 2013, was appointed Chief Executive Officer, and Walter Killough, our former Chief Executive Officer, was appointed Chief Operating Officer, in each case, effective June 5, 2013. On August 6, 2013, we announced that Daphne Smith was appointed as Executive Vice President of Operations, and on October 15, 2013, we announced that Brian Lex Austin-Gemas was appointed as Chief Operating Officer. Mr. Killough left the Company following the expiration of his employment agreement on August 2, 2013. There can be no assurance that the new management team will be able to execute our business model in a manner that will allow our Company to sustain growth and continued success. Changes in senior leadership could impact employee stability as well.

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Our ability to meet our cash requirements depends on many factors.

Depending on results of operations for our current and future periods, as well as our ongoing expense reduction program, our current cash balances, cash flow from operations, and availability under our credit facilities may not be sufficient to meet our current cash requirements. For example, if we do not meet our targets for revenue growth, gross margins, or expenses, or if our costs associated with any retail store expansion plans are not as anticipated, our current sources of funds may be insufficient to meet our cash requirements. We may fail to meet our targets for revenue growth for a variety of reasons, including:

• decreased consumer spending in response to weak economic conditions;

• higher energy prices causing a decreased level of disposable income;

• weakness in the teenage market;

• poor response to our merchandise offerings;

• increased competition from our competitors; and

• marketing and expansion plans that are not as successful as we anticipate.

Additionally, if demand for our products decreases or our retail store plans do not produce the desired sales increases, such developments could reduce our operating revenues. If such funds, together with cash on hand and availability under our Credit Agreement are insufficient to cover our expenses, we could be required to adopt one or more alternatives listed below. For example, we could be required to:

• reduce or delay capital spending;

• reduce discretionary spending;

• sell assets or operations; and/or

• sell additional equity or debt securities, which equity securities may be dilutive.

If we are required to take any of the actions in the first three items immediately above, it could have a material adverse effect on our business, financial condition and results of operations, including our ability to grow our business. In addition, we cannot assure you that we would be able to take any of these actions because of (i) a variety of commercial or market factors, or (ii) market conditions being unfavorable for an equity or debt offering. In addition, such actions, if taken, may not enable us to satisfy our cash requirements if the actions do not generate a sufficient amount of additional capital.

Our catalog response rates may decline.

The number of customers who make purchases from catalogs that we mail to them, which we refer to as “response rates,” may decline due to, among other things, our ability to effectively predict and respond to changing fashion tastes and consumer demands and translate market trends into appropriate, saleable product offerings in a timely manner. Response rates also usually decline when we mail additional catalog editions to the same customers within a short time period. In addition, there can be no assurance that any strategic circulation cuts will enable us to improve or maintain our response rates. These trends in response rates may have a material adverse effect on our rate of sales growth and on our profitability and could have a material adverse effect on our business.

We do not own the uniform resource locator that directs customers to our e-commerce webpage.

Pursuant to an agreement with Alloy, LLC, it will continue to own the uniform resource locator that directs customers to the www.delias.com website. Because a significant portion of our direct marketing sales come from our e-commerce site, if Alloy, LLC fails to maintain that uniform resource locater, our e-commerce activities may suffer.

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We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our results of operations and business.

From time to time, we are involved in lawsuits or other legal proceedings arising in the ordinary course of our business. These may relate to, for example, trademark, servicemark, copyright or other intellectual property matters, employment law matters, commercial disputes, consumer protection claims, claims of regulatory authorities, or other matters. In addition, as a public company we could from time to time face claims relating to corporate or securities law matters. In connection with such litigation, we may be subject to significant damages or equitable remedies. Any of such litigation, whether as plaintiff or defendant, could be costly and time consuming and could divert management and key personnel from our regular business operations. We do not currently believe that any of our outstanding litigation will have a material adverse effect on our business, prospects, financial condition or results of operations. However, due to the uncertainty of litigation and depending on the amount and the timing of any claims, an unfavorable resolution of such claims could materially affect our business, prospects, financial condition and results of operations.

Our Credit Agreement with Salus includes covenants that impose restrictions on our financial and business operations.

Our Credit Agreement contains covenants that restrict the manner in which we conduct our business under certain circumstances. Subject to certain exceptions, these covenants restrict or limit our ability to, among other things:

• grant liens on assets;

• merge, consolidate, dissolve or liquidate;

• incur certain additional indebtedness and guaranty obligations;

• make certain restricted payments (including make dividend payments on our common stock);

• make certain investments or acquisitions;

• engage in certain sales (including certain sales of stock); and

• pay dividends.

If we fail to comply with the covenants and are unable to obtain a waiver or amendment, an event of default would result, and Salus could declare outstanding borrowings immediately due and payable. If Salus were to declare a default, we cannot guarantee that we would have sufficient liquidity at that time to repay or refinance borrowings under the Credit Agreement.

Our ability to borrow under the Credit Agreement is subject to various conditions precedent. We cannot assure you that we will be able to satisfy the conditions to funding at the time we require the drawdowns.

We have a significant number of options outstanding which, if exercised or converted, would dilute the equity interests of our existing stockholders and adversely affect earnings per share.

As of December 10, 2013, we had outstanding options, of which 1,162,636 were vested, to purchase 3,527,323 shares of common stock at a weighted average exercise price of $1.95 per share. From time to time, we may issue additional options to employees, non-employee directors and consultants pursuant to our equity incentive plans.

Future sales of our common stock or the issuance of other equity may adversely affect the market price of our common stock.

We are not restricted from issuing additional common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. Issuances of our common stock or convertible securities will dilute the ownership interest of our stockholders. Sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.

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Our common stock is an equity security and is subordinate to our existing and future indebtedness.

The shares of common stock are equity interests and do not constitute indebtedness. As such, the shares of common stock will rank junior to all of our indebtedness and to other non-equity claims on us and our assets available to satisfy claims on us, including claims in a bankruptcy, liquidation or similar proceeding. Further, the common stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to stockholders generally.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

The Company intends to hold the 2014 Annual Meeting of Stockholders on June 17, 2014. To be considered for inclusion in our proxy materials relating to the 2014 Annual Meeting of Stockholders or to be considered for presentation at the 2014 Annual Meeting of Stockholders without inclusion in our proxy materials, stockholder proposals must be received no later than March 18, 2014. As to any proposals intended to be presented by a stockholder without inclusion in the proxy materials relating to the 2014 Annual Meeting of Stockholders, the proxies named in our form of proxy for that meeting will be entitled to exercise discretionary authority on that proposal unless we receive notice of the matter no later than April 1, 2014. However, even if such notice is timely received, such proxies may nevertheless be entitled to exercise discretionary authority on that matter to the extent permitted by SEC regulations. All stockholder proposals should be marked for the attention of Secretary, dELiA*s, Inc., 50 W. 23^rd Street, New York, New York 10010.

Item  6. Exhibits

(A)	Exhibits
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*
32.1	Certification under section 906 by the Chief Executive Officer.**
32.2	Certification under section 906 by the Chief Financial Officer.**
101. INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith.

** Furnished with this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	dELiA*s, Inc.
Date: December 12, 2013	By	/s/ Tracy Gardner
		Tracy Gardner
		Chief Executive Officer
Date: December 12, 2013	By	/s/ David J. Dick
		David J. Dick
		Chief Financial Officer

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