**UnitedStatesSecurities and Exchange Commission**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                                        | ** ** | **Quarterly Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**  |
|---------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|
| ** **                                        | ** ** | ** **                                                                                         |
| **For the quarterly period ended March 31, 2005** |
| ** **                                        | ** ** | ** **                                                                                         |
| **Or**                                            |
| ** **                                        | ** ** | ** **                                                                                         |
| **o**                                             | ** ** | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |

 

**For the transition period from           to           **

 

**Commission file number 0-21196**

 

**MOTHERS WORK, INC.**

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                                                    | ** ** | **13-3045573**                    |
|-----------------------------------------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (IRS Employer Identification No.) |
|                                                            |       |                              |
| **456 North 5th Street,  Philadelphia, Pennsylvania**           | ** ** | **19123**                         |
| (Address of principal executive offices)                        |       | (Zip Code)                        |

 

Registrant’s telephone number, including areacode **(215) 873-2200**

 

Indicate by check mark whether the Registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yesý No o

 

Indicate by check mark whether the Registrant is an accelerated filer(as defined in Rule 12b-2 of the Act). Yesý No o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

Common Stock, $.01 par value — 5,255,055shares outstanding as of May 13, 2005

 

 

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**INDEX**

 
| PART  I.  FINANCIAL INFORMATION |                                                                                        |
|--------------------------------------|---------------------------------------------------------------------------------------------|
| Item 1.                              | Financial  Statements (unaudited)                                                           |   |
|                                 | Consolidated Balance Sheets                                                                 |   |
|                                 | Consolidated Statements of Operations                                                       |   |
|                                 | Consolidated Statements of Cash Flows                                                       |   |
|                                 | Notes to Consolidated Financial Statements                                                  |   |
| Item 2.                              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
| Item 3.                              | Quantitative  and Qualitative Disclosures About Market Risk                                 |   |
| Item 4.                              | Controls  and Procedures                                                                    |   |
| PART  II.  OTHER INFORMATION    |                                                                                        |
| Item 1.                              | Legal  Proceedings                                                                          |   |
| Item 6.                              | Exhibits                                                                                    |   |
| Signatures                           |                                                                                        |
| Certifications                       |                                                                                        |

 

2

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**PART I. ****FINANCIAL INFORMATION**

**Item 1****. Financial Statements**

**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

(in thousands, except share and per shareamounts)

(unaudited)

 
| ** **                                                                                                                        | ** ** | **March 31, 2005** | ** ** | **September 30, 2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------------------|------------|
| ** **                                                                                                                        | ** ** | ** **         | ** ** | **(As Restated  See Note 2)**    | ** ** |
| **ASSETS**                                                                                                                        |       |               |       |                             |       |
| Current Assets:                                                                                                                   |       |               |       |                             |       |
| Cash and cash equivalents                                                                                                         |       | $                  | 2,827      |                             | $          | 8,467 |   |
| Short-term investments                                                                                                            |       | —             |       | 6,400                            |       |
| Trade receivables, net                                                                                                            |       | 7,832              |       | 2,911                            |       |
| Inventories                                                                                                                       |       | 107,516            |       | 92,743                           |       |
| Deferred income taxes                                                                                                             |       | 4,705              |       | 4,660                            |       |
| Prepaid expenses and other  current assets                                                                                        |       | 3,711              |       | 7,215                            |       |
| Total Current Assets                                                                                                              |       | 126,591            |       | 122,396                          |       |
| Property, Plant and Equipment,  net                                                                                               |       | 81,102             |       | 77,905                           |       |
| Assets Held for Sale                                                                                                              |       | 1,200              |       | 1,200                            |       |
| Other Assets:                                                                                                                     |       |               |       |                             |       |
| Goodwill                                                                                                                          |       | 50,389             |       | 50,389                           |       |
| Deferred financing costs, net  of accumulated amortization of $1,547 and $1,267                                                   |       | 4,006              |       | 3,665                            |       |
| Other intangible assets, net of  accumulated amortization of $2,488 and $2,476                                                    |       | 859                |       | 946                              |       |
| Deferred income taxes                                                                                                             |       | 13,605             |       | 13,317                           |       |
| Other non-current assets                                                                                                          |       | 489                |       | 995                              |       |
| Total Other Assets                                                                                                                |       | 69,348             |       | 69,312                           |       |
| Total Assets                                                                                                                      |       | $                  | 278,241    |                             | $          | 270,813 |   |
|                                                                                                                              |       |               |       |                             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                     |       |               |       |                             |       |
| Current Liabilities:                                                                                                              |       |               |       |                             |       |
| Line of credit borrowings                                                                                                         |       | $                  | —     |                             | $          | — |   |
| Current portion of long-term  debt                                                                                                |       | 728                |       | 288                              |       |
| Accounts payable                                                                                                                  |       | 24,796             |       | 19,779                           |       |
| Accrued expenses and other  current liabilities                                                                                   |       | 32,081             |       | 30,562                           |       |
| Total Current Liabilities                                                                                                         |       | 57,605             |       | 50,629                           |       |
| Long-Term Debt                                                                                                                    |       | 128,477            |       | 127,629                          |       |
| Deferred Rent and Other  Non-Current Liabilities                                                                                  |       | 29,262             |       | 29,652                           |       |
| Total Liabilities                                                                                                                 |       | 215,344            |       | 207,910                          |       |
|                                                                                                                              |       |               |       |                             |       |
| Commitments and Contingencies  (Note 10)                                                                                          |       |               |       |                             |       |
|                                                                                                                              |       |               |       |                             |       |
| Stockholders’ Equity:                                                                                                        |       |               |       |                             |       |
| Preferred Stock, 2,000,000  shares authorized                                                                                     |       |               |       |                             |       |
| Series A cumulative convertible  preferred stock, $.01 par value; 41,000 shares  authorized, none outstanding                |       | —             |       | —                           |       |
| Series B junior participating  preferred stock, $.01 par value; 300,000 shares authorized,  none outstanding                 |       | —             |       | —                           |       |
| Common stock, $.01 par value;  20,000,000 shares authorized, 5,243,315 and 5,207,081 shares issued and  outstanding, respectively |       | 52                 |       | 52                               |       |
| Additional paid-in capital                                                                                                        |       | 62,904             |       | 62,565                           |       |
| Retained earnings (accumulated  deficit)                                                                                          |       | (59                | )          | 286                              |       |
| Total Stockholders’ Equity                                                                                                   |       | 62,897             |       | 62,903                           |       |
| Total Liabilities and Stockholders’  Equity                                                                                  |       | $                  | 278,241    |                             | $          | 270,813 |   |

 

The accompanying notes are an integral partof these Consolidated Financial Statements.

 

3

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(in thousands, except per share amounts)

(unaudited)

 
| ** **                                    | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **2005**                          | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | ** **                        | ** ** | **(As Restated  See Note 2)**   | ** ** | ** ** | ** ** | **(As Restated  See Note 2)** | ** ** |
| Net sales                                     |       | $                                 | 140,031    |                            | $          | 125,803 |   | $ | 273,650 |   | $ | 257,498 |   |
| Cost of goods sold                            |       | 69,818                            |       | 59,726                          |       | 133,024 |   | 121,391 |   |
| Gross profit                                  |       | 70,213                            |       | 66,077                          |       | 140,626 |   | 136,107 |   |
| Selling, general and  administrative expenses |       | 66,517                            |       | 61,932                          |       | 133,588 |   | 125,061 |   |
| Operating income                              |       | 3,696                             |       | 4,145                           |       | 7,038 |   | 11,046 |   |
| Interest expense, net                         |       | 3,857                             |       | 3,702                           |       | 7,612 |   | 7,393 |   |
| Income (loss) before income  taxes            |       | (161                              | )          | 443                             |       | (574 | ) | 3,653 |   |
| Income tax provision (benefit)                |       | (64                               | )          | 192                             |       | (229 | ) | 1,487 |   |
| Net income (loss)                             |       | $                                 | (97        | )                               | $          | 251 |   | $ | (345 | ) | $ | 2,166 |   |
|                                          |       |                              |       |                            |       |   |   |   |   |
| Income (loss) per share—Basic            |       | $                                 | (0.02      | )                               | $          | 0.05 |   | $ | (0.07 | ) | $ | 0.41 |   |
| Average shares outstanding—Basic         |       | 5,237                             |       | 5,210                           |       | 5,227 |   | 5,222 |   |
| Income (loss) per share—Diluted          |       | $                                 | (0.02      | )                               | $          | 0.05 |   | $ | (0.07 | ) | $ | 0.39 |   |
| Average shares outstanding—Diluted       |       | 5,237                             |       | 5,549                           |       | 5,227 |   | 5,554 |   |

 

Theaccompanying notes are an integral part of these Consolidated FinancialStatements.

 

4

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(in thousands)

(unaudited)

 
| ** **                                                                                          | ** ** | **Six Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                          | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| ** **                                                                                          | ** ** | ** **                           | ** ** | **(As Restated** | ** ** |
| ** **                                                                                          | ** ** | ** **                           | ** ** | **See Note 2)** | ** ** |
| **Cash Flows from Operating Activities**                                                            | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net income (loss)                                                                                   |       | $                                    | (345       | ) | $ | 2,166 |   |
| Adjustments to reconcile net  income (loss) to net cash (used in) provided by operating activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                                       |       | 7,608                                |       | 6,902 |   |
| Loss on impairment of  long-lived assets                                                            |       | 1,337                                |       | 209 |   |
| Loss on disposal of assets                                                                          |       | 607                                  |       | 194 |   |
| Accretion of discount on senior  notes                                                              |       | 81                                   |       | 72 |   |
| Deferred income tax benefit                                                                         |       | (333                                 | )          | (272 | ) |
| Tax benefit of stock option  exercises                                                              |       | 80                                   |       | 92 |   |
| Amortization of deferred  financing costs                                                           |       | 280                                  |       | 201 |   |
| Provision for (reversal of)  deferred rent                                                          |       | (236                                 | )          | 1,680 |   |
| Changes in assets and  liabilities:                                                                 |       |                                 |       |   |   |
| Decrease (increase) in —                                                                       |       |                                 |       |   |   |
| Trade receivables                                                                                   |       | (3,450                               | )          | (494 | ) |
| Inventories                                                                                         |       | (14,772                              | )          | (2,165 | ) |
| Prepaid expenses and other  current assets                                                          |       | 3,281                                |       | 670 |   |
| Increase (decrease) in —                                                                       |       |                                 |       |   |   |
| Accounts payable, accrued  expenses and other current liabilities                                   |       | 5,487                                |       | (105 | ) |
| Net cash (used in) provided by  operating activities                                                |       | (375                                 | )          | 9,150 |   |
| **Cash Flows from Investing  Activities**                                                           |       |                                 |       |   |   |
| Proceeds from sale of  short-term investments                                                       |       | 10,400                               |       | 12,050 |   |
| Purchase of short-term  investments                                                                 |       | (4,000                               | )          | (9,050 | ) |
| Capital expenditures                                                                                |       | (11,923                              | )          | (9,168 | ) |
| Purchase of intangible assets                                                                       |       | (28                                  | )          | (13 | ) |
| Net cash used in investing  activities                                                              |       | (5,551                               | )          | (6,181 | ) |
|                                                                                                |       |                                 |       |   |   |
| **Cash Flows from Financing  Activities**                                                           |       |                                 |       |   |   |
| Increase in cash overdrafts                                                                         |       | 1,248                                |       | 1,325 |   |
| Repayment of long-term debt                                                                         |       | (230                                 | )          | (76 | ) |
| Repurchase of common stock                                                                          |       | —                               |       | (1,019 | ) |
| Payout of redeemed Series A  Preferred Stock                                                        |       | (373                                 | )          | (406 | ) |
| Deferred financing costs                                                                            |       | (620                                 | )          | — |   |
| Proceeds from exercise of stock  options                                                            |       | 261                                  |       | 229 |   |
| Net cash provided by financing  activities                                                          |       | 286                                  |       | 53 |   |
| **Net (Decrease) Increase in  Cash and Cash Equivalents**                                           |       | (5,640                               | )          | 3,022 |   |
| **Cash and Cash Equivalents,  Beginning of Period**                                                 |       | 8,467                                |       | 15,731 |   |
| **Cash and Cash Equivalents,  End of Period**                                                       |       | $                                    | 2,827      |   | $ | 18,753 |   |
|                                                                                                |       |                                 |       |   |   |
| Supplemental Disclosures of  Cash Flow Information:                                                 |       |                                 |       |   |   |
| Cash paid for interest                                                                              |       | $                                    | 7,230      |   | $ | 7,187 |   |
| Cash paid for income taxes                                                                          |       | $                                    | 632        |   | $ | 2,772 |   |
| Supplemental Disclosures of  Non-Cash Investing and Financing Activities:                           |       |                                 |       |   |   |
| Purchase of equipment under  capital lease obligations                                              |       | $                                    | 1,438      |   | $ | — |   |

 

The accompanying notes are an integral partof these Consolidated Financial Statements.

 

5

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**March 31, 2005**

(unaudited)

 

**1.     BASIS OF FINANCIAL STATEMENT PRESENTATION**

 

The accompanying unaudited consolidated financial statements of MothersWork, Inc. and subsidiaries (the “Company” or “Mothers Work”) have beenprepared in accordance with the requirements for Form 10-Q andArticle 10 of Regulation S-X and, accordingly, certain informationand footnote disclosures have been condensed or omitted.

 

In the opinion of management, the consolidated financial statementscontain all adjustments, consisting of normal recurring adjustments, necessaryto present fairly the consolidated financial position of the Company for theperiods presented. Since the Company’s operations are seasonal, the interimoperating results of the Company may not be indicative of operating results forthe full year.

 

The Company operates on a fiscal year ending September 30 of eachyear.  All references to fiscal years ofthe Company refer to fiscal years ended on September 30 in those years.  For example, the Company’s “fiscal 2005” willend on September 30, 2005. Certain reclassifications have beenmade to the prior year consolidated financial statements to conform to thecurrent year presentation.

 

**2.     RESTATEMENT**

 

TheCompany has completed a review of its historical lease accounting methods todetermine whether these methods were in accordance with the views expressed bythe Office of the Chief Accountant of the Securities and Exchange Commission(“SEC”) on February 7, 2005 in a letter to the American Institute of CertifiedPublic Accountants and other recent interpretations regarding certain operatinglease accounting issues and their application under accounting principlesgenerally accepted in the United States of America (“GAAP”). As a result of theCompany’s review, it has determined that, with regard to its method ofaccounting for leases, its historical methods of accounting for rent holidaysand tenant improvement allowances, and of determining the amortization periodfor leasehold improvements for certain leased properties, were not inaccordance with GAAP. As a result, on May 10, 2005, the Company filed a CurrentReport on Form 8-K with the SEC announcing its decision to restate thepreviously issued consolidated financial statements contained in its AnnualReport on Form 10-K for the year ended September 30, 2004 and the QuarterlyReport on Form 10-Q for the quarterly period ended December 31, 2004  (the “Restatement”).

 

*Rent Holiday*. The Company has historicallyrecognized rent holiday periods and scheduled rent increases on a straight-linebasis over the lease term beginning with the commencement date of the leasewhich is typically the store opening date. The Company has determined that thelease term should commence on the date it takes possession of the leasedproperty, which is generally four to six weeks prior to a store’s opening date.

 

*Tenant Improvement Allowances*. The Companyhas historically accounted for tenant improvement allowances as reductions tothe related leasehold improvement assets on the consolidated balance sheets andas reductions of capital expenditures in investing activities on theconsolidated statements of cash flows. The Company has now determined thatallowances should be recorded as deferred rent liabilities on the consolidatedbalance sheets and as a component of operating activities on the consolidatedstatements of cash flows.

 

*Amortization of Leasehold Improvements.*Historically, the life used for certain leasehold improvements by the Companyin some instances was longer than the lease term for such related leases.  As part of the Company’s review associatedwith lease matters, the Company has determined that the amortization period forleasehold improvements should be consistent with the straight-line rent expenseperiod for each of its leases.  The livesfor all leasehold improvements have been reviewed to ensure that theamortization is now recorded based on the lesser of the estimated useful lifeof the asset or the lease term.

 

The primary effects of the correctionsare:  (i) to accelerate the rent expenseon properties the Company occupied before payment of rents was required (rentholidays); (ii) to increase depreciation and amortization expense and decreasestore occupancy expense (both of which are components of selling, general andadministrative expenses) to reflect the proper accounting for tenant improvementallowances; and (iii) to accelerate the amortization of leasehold improvementassets on those leased properties where the lease term is shorter than theestimated useful economic life of those assets. The cumulative effect of these accounting changes is areduction to retained earnings of $2,533,000 as of the beginning of fiscal 2004and incremental decreases to retained earnings of $834,000 and $304,000 forfiscal 2004 and the first quarter of fiscal 2005, respectively.  TheRestatement decreased

 

6

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reporteddiluted earnings per share by $0.15 and $0.06, respectively, for fiscal 2004 andthe first quarter of fiscal 2005.

 

The consolidated financial statements included in this Form 10-Q havebeen restated to reflect the adjustments described above. The following is asummary of the impact of the Restatement on (i) the consolidated balance sheetas of September 30, 2004, (ii) the consolidated statements of operations forthe three and six months ended March 31, 2004 and (iii) the consolidatedstatement of cash flows for the six months ended March 31, 2004:

 

(inthousands, except per share amounts)

 

**CONSOLIDATED BALANCE SHEET (*)**

 
| ** **                                       | ** ** | **September 30, 2004** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **As Reported**             | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Property, Plant and Equipment,  net              |       | $                           | 60,288     |   | $ | 17,617 |   | $ | 77,905 |   |
| Deferred Income Taxes –  Non-Current        |       | 11,504                      |       | 1,813 |   | 13,317 |   |
| Total Other Assets                               |       | 67,499                      |       | 1,813 |   | 69,312 |   |
| Total Assets                                     |       | 251,383                     |       | 19,430 |   | 270,813 |   |
|                                             |       |                        |       |   |   |   |   |
| Deferred Rent and Other Non-Current  Liabilities |       | 6,856                       |       | 22,796 |   | 29,652 |   |
| Total Liabilities                                |       | 185,113                     |       | 22,796 |   | 207,910 |   |
| Retained Earnings                                |       | 3,653                       |       | (3,367 | ) | 286 |   |
| Total Stockholders’ Equity                  |       | 66,270                      |       | (3,367 | ) | 62,903 |   |
| Total Liabilities and  Stockholders’ Equity |       | 251,383                     |       | 19,430 |   | 270,813 |   |
|                                                  |            |                             |            |  |  |  |  |  |  |  |

 

**CONSOLIDATED STATEMENTS OF OPERATIONS (*)**

 
| ** **                                    | ** ** | **Three Months Ended  March 31, 2004** | ** ** | **Six Months Ended  March 31, 2004** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                    | ** ** | **As Reported**                        | ** ** | **Adjustments**                      | ** ** | **As Restated** | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Selling, general and  administrative expenses |       | $                                      | 61,635     |                                 | $          | 297 |   | $ | 61,932 |   | $ | 124,550 |   | $ | 511 |   | $ | 125,061 |   |
| Operating income                              |       | 4,442                                  |       | (297                                 | )          | 4,145 |   | 11,557 |   | (511 | ) | 11,046 |   |
| Income (loss) before income  taxes            |       | 740                                    |       | (297                                 | )          | 443 |   | 4,164 |   | (511 | ) | 3,653 |   |
| Income tax provision (benefit)                |       | 296                                    |       | (104                                 | )          | 192 |   | 1,666 |   | (179 | ) | 1,487 |   |
| Net income (loss)                             |       | 444                                    |       | (193                                 | )          | 251 |   | 2,498 |   | (332 | ) | 2,166 |   |
| Income (loss) per share—Basic            |       | 0.09                                   |       | (0.04                                | )          | 0.05 |   | 0.48 |   | (0.07 | ) | 0.41 |   |
| Income (loss) per share—Diluted          |       | 0.08                                   |       | (0.03                                | )          | 0.05 |   | 0.45 |   | (0.06 | ) | 0.39 |   |
|                                               |            |                                        |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**CONSOLIDATED STATEMENT OF CASH FLOWS (*)**

 
| ** **                                 | ** ** | **Six Months Ended  March 31, 2004** | ** ** |
|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                 | ** ** | **As Reported**                           | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| **Cash  Flows from Operating Activities**  | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                          |       | $                                         | 2,498      |   | $ | (332 | ) | $ | 2,166 |   |
| Depreciation and amortization              |       | 4,967                                     |       | 1,935 |   | 6,902 |   |
| Loss on impairment of  long-lived assets   |       | 173                                       |       | 36 |   | 209 |   |
| Loss on disposal of assets                 |       | 220                                       |       | (26 | ) | 194 |   |
| Deferred income tax benefit                |       | (93                                       | )          | (179 | ) | (272 | ) |
| Provision for (reversal of)  deferred rent |       | 352                                       |       | 1,328 |   | 1,680 |   |
| Net cash provided by operating  activities |       | 6,388                                     |       | 2,762 |   | 9,150 |   |
| **Cash Flows from Investing  Activities**  |       |                                      |       |   |   |   |   |
| Capital expenditures                       |       | (6,406                                    | )          | (2,762 | ) | (9,168 | ) |
| Net cash used in investing  activities     |       | (3,419                                    | )          | (2,762 | ) | (6,181 | ) |
|                                            |            |                                           |            |  |  |  |  |  |  |  |

 

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(*) The tables include onlythose line items which have changed as a result of the Restatement.

 

**3.     EARNINGS PER SHARE (EPS)**

 

The Companyfollows the Financial Accounting Standards Board (“FASB”) Statement ofFinancial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share.”  Basic earnings per share (“Basic EPS”) iscomputed by dividing net income (loss) by the weighted average number of commonshares outstanding.  Diluted earnings per share (“Diluted EPS”) iscomputed by dividing net income (loss) by the weighted average number of commonshares outstanding, after giving effect to the potential dilution from theexercise of securities, such as stock options and warrants, into shares ofcommon stock as if those securities were exercised.

 

7

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The followingtable summarizes the Basic EPS and Diluted EPS calculation (in thousands,except per share amounts):

 
| ** **                                                                              | ** ** | **Three Months Ended  March 31, 2005**    | ** ** | **Three Months Ended  March 31, 2004** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                              | ** ** | ** **                                | ** ** | **(As Restated-See Note 2)**           | ** ** |
| ** **                                                                              | ** ** | **Net  Income (Loss)**                    | ** ** | **Shares**                             | ** ** | **EPS** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **EPS** | ** ** |
| Basic EPS                                                                               |       | $                                         | (97        | )                                      | 5,237      |   | $ | (0.02 | ) | $ | 251 |   | 5,210 |   | $ | 0.05 |   |
| Incremental shares from the  assumed exercise of outstanding stock options and warrants |       | —                                    |       | —                                 |       |   |   | — |   | 339 |   |   |   |
|                                                                                    |       |                                      |       |                                   |       |   |   |   |   |   |   |   |   |
| Diluted EPS                                                                             |       | $                                         | (97        | )                                      | 5,237      |   | $ | (0.02 | ) | $ | 251 |   | 5,549 |   | $ | 0.05 |   |
|                                                                                    |       |                                      |       |                                   |       |   |   |   |   |   |   |   |   |
| ** **                                                                              | ** ** | **Six Months Ended  March 31, 2005** | ** ** | **Six Months Ended  March 31, 2004**   | ** ** |
| ** **                                                                              | ** ** | ** **                                | ** ** | ** **                             | ** ** | ** ** | ** ** | **(As Restated-See Note 2)** | ** ** |
| ** **                                                                              | ** ** | **Net  Income (Loss)**                    | ** ** | **Shares**                             | ** ** | **EPS** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **EPS** | ** ** |
| Basic EPS                                                                               |       | $                                         | (345       | )                                      | 5,227      |   | $ | (0.07 | ) | $ | 2,166 |   | 5,222 |   | $ | 0.41 |   |
| Incremental shares from the  assumed exercise of outstanding stock options and warrants |       | —                                    |       | —                                 |       |   |   | — |   | 332 |   |   |   |
|                                                                                    |       |                                      |       |                                   |       |   |   |   |   |   |   |   |   |
| Diluted EPS                                                                             |       | $                                         | (345       | )                                      | 5,227      |   | $ | (0.07 | ) | $ | 2,166 |   | 5,554 |   | $ | 0.39 |   |

 

For the three months and six months ended March 31, 2004, options topurchase 276,150 and 274,200 shares, respectively, were excluded from thecalculation of Diluted EPS as their effect would have been antidilutive.  For the three months and sixmonths ended March 31, 2005, since the Company incurred a loss for theseperiods, all of the outstanding stock options and warrants were excluded from the calculation of Diluted EPSas their effect would have been antidilutive. These options and warrantscould potentially dilute EPS in the future.

 

On March 5, 2003, the Board of Directors approved a sharerepurchase program under which the Company was authorized to repurchase up to$10,000,000 of its outstanding common stock from time to time in privatetransactions or on the open market through March 4, 2005, the expirationdate of the share repurchase program.  Asof March 31, 2005, the Company had repurchased and retired 142,269 shares inthe aggregate at a total cost of $3,243,000, for an average cost of $22.79 pershare.  No repurchases were made duringthe quarter ended March 31, 2005. The indenture governing theCompany’s $125,000,000 of 11 1⁄4%senior notes due 2010 (the “New Senior Notes”) and the terms of its creditfacility contain restrictions that place limits on certain payments by theCompany, including payments to repurchase shares of our common stock. Therepurchases of common stock have been made in compliance with all restrictionsunder the indenture governing the New Senior Notes and the terms of both theCompany’s former and new credit facilities.

 

**4.     STOCK-BASED COMPENSATION**

 

The Company follows the intrinsic value method of accounting forstock-based employee compensation in accordance with Accounting PrinciplesBoard (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” andrelated interpretations. The following tables illustrate the effect on netincome (loss) and earnings per share if the Company had accounted for itsstock option plans using the fair value method of accounting under SFAS No.123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accountingfor Stock-Based Compensation—Transition and Disclosure”. InDecember 2004, the FASB revised SFAS No. 123, by issuing SFAS 123(R), “Share-BasedPayment” (see Note 8).

 

8

----

 
| ** **                                     | ** **                                                                                                                | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------|------------|---------------------------------|------------|
| **(in  thousands, except per share amounts):** | ** **                                                                                                                | **2005**                               | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                     | ** **                                                                                                                | ** **                             | ** ** | **(As Restated-  See Note 2)**  | ** ** | ** ** | ** ** | **(As Restated-  See Note 2)** | ** ** |
| Net income (loss), as reported                 |                                                                                                                      | $                                      | (97        | )                               | $          | 251 |   | $ | (345 | ) | $ | 2,166 |   |
| Deduct:                                        | Total stock-based employee compensation expense determined under  the fair value-based method for all  grants, net of tax |                                   | (439       | )                               | (418       | ) | (1,166 | ) | (900 | ) |
| Pro forma net income (loss)                    |                                                                                                                      | $                                      | (536       | )                               | $          | (167 | ) | $ | (1,511 | ) | $ | 1,266 |   |
|                                           |                                                                                                                      |                                   |       |                            |       |   |   |   |   |
| Basic EPS:                                     |                                                                                                                      |                                   |       |                            |       |   |   |   |   |
| As reported                                    |                                                                                                                      | $                                      | (0.02      | )                               | $          | 0.05 |   | $ | (0.07 | ) | $ | 0.41 |   |
| Pro forma                                      |                                                                                                                      | $                                      | (0.10      | )                               | $          | (0.03 | ) | $ | (0.29 | ) | $ | 0.24 |   |
|                                           |                                                                                                                      |                                   |       |                            |       |   |   |   |   |
| Diluted EPS:                                   |                                                                                                                      |                                   |       |                            |       |   |   |   |   |
| As reported                                    |                                                                                                                      | $                                      | (0.02      | )                               | $          | 0.05 |   | $ | (0.07 | ) | $ | 0.39 |   |
| Pro forma                                      |                                                                                                                      | $                                      | (0.10      | )                               | $          | (0.03 | ) | $ | (0.29 | ) | $ | 0.23 |   |
|                                                |                                                                                                                           |                                        |            |                                 |            |  |  |  |  |  |  |  |  |  |

 

Pro formaDiluted EPS is computed by dividing pro forma net income (loss) by the proforma weighted average number of shares outstanding after giving effect to thepotential dilution from the exercise of securities, such as stock options andwarrants, into shares of common stock as if those securities were exercised asof the beginning of the period presented.   Since the Company had incurred a pro formaloss for the three months and sixmonths ended March 31, 2005 and for the three months ended March 31, 2004, allof the outstanding stock options and warrants during these periods were excluded from the calculation of Diluted EPSas their effect would have been antidilutive.

 

During thethree and six months ended March 31, 2005, a total of 54,500 and 328,050 stockoptions, respectively, were granted to certain employees and non-employeedirectors for the purchase of the Company’s common stock at prices not lessthan the fair market value of the Company’s common stock on the date ofgrant.  For the three and six monthperiods ended March 31, 2004, the stock options granted to certain employeesand non-employee directors for the purchase of the Company’s common stock were37,800 and 188,000, respectively.

 

The weighted average fair value of the options granted during the threeand six months ended March 31, 2005 was estimated at $9.56 and $8.80 per share,respectively. For the three and six month periods ending March 31, 2004, theweighted average fair value of options granted during those periods wasestimated at $17.21 and $16.30 per share, respectively.  The weighted average fair value is calculatedbased on the date of grant using the Black-Scholes option-pricing model withthe following weighted average assumptions:

 
| ** **                | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|---------------------------|------------|-----------------------------------|------------|---------------------------------|------------|
| ** **                | ** ** | **2005**                          | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Dividend yield            |       | None                              |       | None                            |       | None |   | None |   |
| Expected price volatility |       | 60.9                              | %          | 61.2                            | %          | 60.9 | % | 61.7 | % |
| Risk-free interest rates  |       | 4.1                               | %          | 3.6                             | %          | 4.0 | % | 3.8 | % |
| Expected lives            |       | 8.0 years                         |       | 8.0 years                       |       | 8.0 years |   | 8.0 years |   |

 

**5.     INVENTORIES**

 

Inventorieswere comprised of the following (in thousands):

 
| ** **       | ** ** | **March 31, 2005** | ** ** | **September 30, 2004** | ** ** |
|------------------|------------|--------------------|------------|-----------------------------|------------|
| Finished goods   |       | $                  | 97,535     |                        | $          | 81,428 |   |
| Work-in-progress |       | 3,129              |       | 3,317                       |       |
| Raw materials    |       | 6,852              |       | 7,998                       |       |
|             |       | $                  | 107,516    |                        | $          | 92,743 |   |

 

9

----

 

**6.     ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES**

 

Accruedexpenses and other current liabilities were comprised of the following (inthousands):

 
| ** **                                                   | ** ** | **March 31, 2005** | ** ** | **September 30, 2004** | ** ** |
|--------------------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|
| Salaries, wages, and employee  benefits                      |       | $                  | 9,557      |                        | $          | 8,944 |   |
| Income taxes payable                                         |       | 945                |       | 1,344                       |       |
| Interest                                                     |       | 2,415              |       | 2,358                       |       |
| Sales taxes                                                  |       | 3,043              |       | 2,458                       |       |
| Insurance                                                    |       | 2,669              |       | 2,425                       |       |
| Rent                                                         |       | 734                |       | 608                         |       |
| Audit and legal                                              |       | 1,660              |       | 1,671                       |       |
| Reserves recorded in the  iMaternity acquisition (Note 7)    |       | 414                |       | 850                         |       |
| Remaining payout for redemption  of Series A Preferred Stock |       | 679                |       | 1,052                       |       |
| Accrued store construction  costs                            |       | 1,351              |       | 1,514                       |       |
| Gift certificates and store  credits                         |       | 3,460              |       | 2,586                       |       |
| Other                                                        |       | 5,154              |       | 4,752                       |       |
|                                                         |       | $                  | 32,081     |                        | $          | 30,562 |   |

 

Interest payments on the New Senior Notes are made semiannually onFebruary 1st and August 1st.

 

**7.     iMATERNITY ACQUISITION EXIT/RESTRUCTURING ACTIVITY**

 

The Company acquired eSpecialty Brands, LLC (“iMaternity”) on October17, 2001 (the “Acquisition Date”). The iMaternity manufacturing and warehousingoperations in Costa Rica have been shut down and are being marketed forsale.  The carrying value of the Costa Rica facilities was recorded at theestimated realizable value as of the Acquisition Date, which was determinedbased on a market survey received from an independent third party, lessestimated selling costs, and is classified as “Assets Held for Sale” in theaccompanying consolidated balance sheets. In July 2004, the Company received an updated market survey from anindependent third party, which survey continued to support the carrying valueof the Costa Rican facilities.

 

As of March31, 2005, the remaining iMaternity acquisition reserves consisted of: (a) a severancereserve outstanding of $300,000 that reflects the remainder of a non-competeand severance arrangement with a former executive of iMaternity that is payableratably on a monthly basis through September 2006; and (b) the reserve for exitcosts of $114,000 that is principally for the expected costs related to theCosta Rican facilities.

 

A summary ofthe charges incurred and reserves recorded in connection with the iMaternityacquisition exit/restructuring activities as of September 30, 2004 and for thesix months ended March 31, 2005 is as follows (in thousands):

 
| ** **             | ** ** | **Balance as of  September 30,  2004** | ** ** | **First Six Months  Fiscal 2005 Charges** | ** ** | **Balance as of  March 31, 2005** | ** ** |
|------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------|------------|
| Lease termination fees |       | $                                           | 249        |                                      | $          | (249                              | )          | $ | — |   |
| Severance              |       | 400                                         |       | (100                                      | )          | 300                               |       |
| Exit and other costs   |       | 201                                         |       | (87                                       | )          | 114                               |       |
|                   |       | $                                           | 850        |                                      | $          | (436                              | )          | $ | 414 |   |

 

**8.     NEW ACCOUNTING PRONOUNCEMENTS**

 

***SFAS No. 123(R****)**.******* In December 2004, the FASB revised SFASNo. 123 by issuing SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R)replaces SFAS No. 123 and APB Opinion No. 25 and establishes standards for theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods and services.  SFAS No. 123(R)requires that the compensation cost relating to share-based paymenttransactions be recognized in financial statements, measured by the fair valueof the equity or liability instruments issued, and is effective as of the firstreporting period of the fiscal year that begins after June 15, 2005 for publicentities that do not file as small business issuers.  The fair value-based method of SFAS No. 123is similar in most respects to the fair value-based method under SFAS No.123(R), however,

 

10

----

 

certain transition rules ofSFAS No. 123(R) may affect the impact on the Company’s consolidated financialposition or results of operations.  Suchimpact, if any, on the Company’s consolidated financial position or results ofoperations has not yet been determined. The Company is currently evaluating the provisions of SFAS No. 123(R)and plans to adopt it in the first quarter of Fiscal 2006.

 

**9.     GUARANTOR SUBSIDIARIES**

 

Pursuant to the terms of the indenture relating to the New SeniorNotes, each of the domestic subsidiaries of Mothers Work, Inc. (the “GuarantorSubsidiaries”) has jointly and severally provided an unconditional guarantee ofthe obligations of Mothers Work with respect to the New Senior Notes. There areno restrictions on any of the assets of the Guarantor Subsidiaries which wouldlimit their ability to transfer funds to Mothers Work in the form of loans,advances or cash dividends, except as provided by applicable law. None of theCompany’s foreign subsidiaries (the “Non-Guarantor Subsidiaries”) haveguaranteed the New Senior Notes. The condensed consolidating financialinformation for the Company, the Guarantor Subsidiaries, and the Non—GuarantorSubsidiaries as of and for the six months ended March 31, 2005 as presentedbelow has been prepared from the books and records maintained by the GuarantorSubsidiaries and the Company. The condensed financial information may notnecessarily be indicative of the results of operations or financial positionhad the Guarantor Subsidiaries operated as independent entities. Certainintercompany revenues and expenses are eliminated in consolidation.  As a result of this activity, an amount dueto/due from parent will exist at any time.

 

11

----

 

**Mothers Work, Inc.**

**Condensed Consolidating Balance Sheet**

**March 31, 2005**

(in thousands)

(unaudited)

 
| ** **                                        | ** ** | **Mothers Work  (Parent  Company)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries  (Foreign  Operations)** | ** ** | **Consolidating  Eliminations** | ** ** | **Mothers Work  Consolidated** | ** ** |
|---------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|--------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| **ASSETS**                                        |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Current Assets:                                   |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Cash and cash equivalents                         |       | $                                   | 2,666      |                        | $          | 7                                                      |       | $                               | 154        |                           | $          | — |   | $ | 2,827 |   |
| Trade receivables, net                            |       | 7,761                               |       | —                      |       | 71                                                     |       | —                          |       | 7,832                          |       |
| Inventories                                       |       | 105,477                             |       | —                      |       | 2,039                                                  |       | —                          |       | 107,516                        |       |
| Deferred income taxes                             |       | 4,705                               |       | —                      |       | —                                                 |       | —                          |       | 4,705                          |       |
| Prepaid expenses and other  current assets        |       | 3,711                               |       | —                      |       | —                                                 |       | —                          |       | 3,711                          |       |
| Total Current Assets                              |       | 124,320                             |       | 7                           |       | 2,264                                                  |       | —                          |       | 126,591                        |       |
| Property, Plant and Equipment,  net               |       | 78,743                              |       | —                      |       | 2,359                                                  |       | —                          |       | 81,102                         |       |
| Assets Held for Sale                              |       | —                              |       | —                      |       | 1,200                                                  |       | —                          |       | 1,200                          |       |
| Other Assets                                      |       | 69,346                              |       | 2                           |       | —                                                 |       | —                          |       | 69,348                         |       |
| Investments in and Advances to  (from) Affiliates |       | 1,703                               |       | 225,586                     |       | (4,567                                                 | )          | (222,722                        | )          | —                         |       |
| Total Assets                                      |       | $                                   | 274,112    |                        | $          | 225,595                                                |       | $                               | 1,256      |                           | $          | (222,722 | ) | $ | 278,241 |   |
|                                              |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**    |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Current Liabilities:                              |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Line of credit borrowings                         |       | $                                   | —     |                        | $          | —                                                 |       | $                               | —     |                           | $          | — |   | $ | — |   |
| Current portion of long-term  debt                |       | 728                                 |       | —                      |       | —                                                 |       | —                          |       | 728                            |       |
| Accounts payable                                  |       | 24,745                              |       | 51                          |       | —                                                 |       | —                          |       | 24,796                         |       |
| Accrued expenses and other  current liabilities   |       | 28,151                              |       | 3,573                       |       | 357                                                    |       | —                          |       | 32,081                         |       |
| Total Current Liabilities                         |       | 53,624                              |       | 3,624                       |       | 357                                                    |       | —                          |       | 57,605                         |       |
| Long-Term Debt                                    |       | 128,477                             |       | —                      |       | —                                                 |       | —                          |       | 128,477                        |       |
| Deferred Rent and Other  Non-Current Liabilities  |       | 29,114                              |       | —                      |       | 148                                                    |       | —                          |       | 29,262                         |       |
| Total Liabilities                                 |       | 211,215                             |       | 3,624                       |       | 505                                                    |       | —                          |       | 215,344                        |       |
|                                              |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Total Stockholders’ Equity                   |       | 62,897                              |       | 221,971                     |       | 751                                                    |       | (222,722                        | )          | 62,897                         |       |
| Total Liabilities and  Stockholders’ Equity  |       | $                                   | 274,112    |                        | $          | 225,595                                                |       | $                               | 1,256      |                           | $          | (222,722 | ) | $ | 278,241 |   |

 

12

----

 

**Mothers Work, Inc.**

**Consolidating Statement of Operations**

**For The Six Months Ended March 31, 2005**

(in thousands)

(unaudited)

 
| ** **                                    | ** ** | **Mothers Work  (Parent Company)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries  (Foreign  Companies)** | ** ** | **Consolidating  Eliminations** | ** ** | **Mothers Work  Consolidated** | ** ** |
|-----------------------------------------------|------------|------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| Net sales                                     |       | $                                  | 267,842    |                        | $          | 14,288                                                |       | $                               | 5,808      |                           | $          | (14,288 | ) | $ | 273,650 |   |
| Cost of goods sold                            |       | 130,360                            |       | —                      |       | 2,664                                                 |       | —                          |       | 133,024                        |       |
| Gross profit                                  |       | 137,482                            |       | 14,288                      |       | 3,144                                                 |       | (14,288                         | )          | 140,626                        |       |
| Selling, general and administrative  expenses |       | 144,910                            |       | 225                         |       | 2,741                                                 |       | (14,288                         | )          | 133,588                        |       |
| Operating income (loss)                       |       | (7,428                             | )          | 14,063                      |       | 403                                                   |       | —                          |       | 7,038                          |       |
| Interest income (expense), net                |       | (13,721                            | )          | 6,109                       |       | —                                                |       | —                          |       | (7,612                         | )          |
| Equity in earnings of  subsidiaries           |       | 20,575                             |       | —                      |       | —                                                |       | (20,575                         | )          | —                         |       |
| Income (loss) before income  taxes            |       | (574                               | )          | 20,172                      |       | 403                                                   |       | (20,575                         | )          | (574                           | )          |
| Income tax provision (benefit)                |       | (229                               | )          | 7,060                       |       | 161                                                   |       | (7,221                          | )          | (229                           | )          |
| Net income (loss)                             |       | $                                  | (345       | )                           | $          | 13,112                                                |       | $                               | 242        |                           | $          | (13,354 | ) | $ | (345 | ) |

 

13

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**Mothers Work, Inc.**

**Consolidating Cash Flow Statement**

**For The Six Months Ended March 31, 2005**

(in thousands)

(unaudited)

 
| ** **                                                                                          | ** ** | **Mothers Work  (Parent  Company)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries  (Foreign  Companies)** | ** ** | **Consolidating  Eliminations** | ** ** | **Mothers Work  Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| **Cash Flows from Operating  Activities:**                                                          | ** ** | ** **                          | ** ** | ** **                  | ** ** | ** **                                            | ** ** | ** **                      | ** ** | ** **                     | ** ** |
| Net income (loss)                                                                                   |       | $                                   | (345       | )                           | $          | 13,112                                                |       | $                               | 242        |                           | $          | (13,354 | ) | $ | (345 | ) |
| Adjustments to reconcile net  income (loss) to net cash (used in) provided by operating activities: |       |                                |       |                        |       |                                                  |       |                            |       |                           |       |
| Depreciation and amortization                                                                       |       | 7,485                               |       | —                      |       | 123                                                   |       | —                          |       | 7,608                          |       |
| Loss on impairment of  long-lived assets                                                            |       | 1,337                               |       | —                      |       | —                                                |       | —                          |       | 1,337                          |       |
| Loss on disposal of assets                                                                          |       | 607                                 |       | —                      |       | —                                                |       | —                          |       | 607                            |       |
| Accretion of discount on senior  notes                                                              |       | 81                                  |       | —                      |       | —                                                |       | —                          |       | 81                             |       |
| Deferred income tax benefit                                                                         |       | (333                                | )          | —                      |       | —                                                |       | —                          |       | (333                           | )          |
| Tax benefit of stock option  exercises                                                              |       | 80                                  |       | —                      |       | —                                                |       | —                          |       | 80                             |       |
| Amortization of deferred  financing costs                                                           |       | 280                                 |       | —                      |       | —                                                |       | —                          |       | 280                            |       |
| Provision for (reversal of)  deferred rent                                                          |       | (286                                | )          | —                      |       | 50                                                    |       | —                          |       | (236                           | )          |
| Changes in assets and  liabilities:                                                                 |       |                                |       |                        |       |                                                  |       |                            |       |                           |       |
| Decrease (increase) in—                                                                        |       |                                |       |                        |       |                                                  |       |                            |       |                           |       |
| Trade receivables                                                                                   |       | (3,424                              | )          | —                      |       | (26                                                   | )          | —                          |       | (3,450                         | )          |
| Inventories                                                                                         |       | (14,447                             | )          | —                      |       | (325                                                  | )          | —                          |       | (14,772                        | )          |
| Prepaid expenses and other  current assets                                                          |       | 3,281                               |       | —                      |       | —                                                |       | —                          |       | 3,281                          |       |
| Investments in and advances to  (from) affiliates                                                   |       | (2,961                              | )          | (10,435                     | )          | 42                                                    |       | 13,354                          |       | —                         |       |
| Increase (decrease) in—                                                                        |       |                                |       |                        |       |                                                  |       |                            |       |                           |       |
| Accounts payable, accrued  expenses and other current liabilities                                   |       | 8,150                               |       | (2,714                      | )          | 51                                                    |       | —                          |       | 5,487                          |       |
| Net cash (used in) provided by  operating activities                                                |       | (495                                | )          | (37                         | )          | 157                                                   |       | —                          |       | (375                           | )          |
| **Cash Flows from Investing  Activities:**                                                          |       |                                |       |                        |       |                                                  |       |                            |       |                           |       |
| Proceeds from sale of  short-term investments                                                       |       | 10,400                              |       | —                      |       | —                                                |       | —                          |       | 10,400                         |       |
| Purchase of short-term  investments                                                                 |       | (4,000                              | )          | —                      |       | —                                                |       | —                          |       | (4,000                         | )          |
| Capital expenditures                                                                                |       | (10,923                             | )          | —                      |       | (1,000                                                | )          | —                          |       | (11,923                        | )          |
| Purchase of intangible assets                                                                       |       | (28                                 | )          | —                      |       | —                                                |       | —                          |       | (28                            | )          |
| Net cash used in investing  activities                                                              |       | (4,551                              | )          | —                      |       | (1,000                                                | )          | —                          |       | (5,551                         | )          |
| **Cash Flows from Financing  Activities:**                                                          |       |                                |       |                        |       |                                                  |       |                            |       |                           |       |
| Increase in cash overdrafts                                                                         |       | 1,248                               |       | —                      |       | —                                                |       | —                          |       | 1,248                          |       |
| Repayment of long-term debt                                                                         |       | (230                                | )          | —                      |       | —                                                |       | —                          |       | (230                           | )          |
| Payout for redeemed Series A  Preferred Stock                                                       |       | (373                                | )          | —                      |       | —                                                |       | —                          |       | (373                           | )          |
| Deferred financing costs                                                                            |       | (620                                | )          | —                      |       | —                                                |       | —                          |       | (620                           | )          |
| Proceeds from exercise of stock  options                                                            |       | 261                                 |       | —                      |       | —                                                |       | —                          |       | 261                            |       |
| Net cash provided by financing  activities                                                          |       | 286                                 |       | —                      |       | —                                                |       | —                          |       | 286                            |       |
| **Net Decrease in Cash and Cash  Equivalents**                                                      |       | (4,760                              | )          | (37                         | )          | (843                                                  | )          | —                          |       | (5,640                         | )          |
| **Cash and Cash Equivalents,  Beginning of Period**                                                 |       | 7,426                               |       | 44                          |       | 997                                                   |       | —                          |       | 8,467                          |       |
| **Cash and Cash Equivalents,  End of Period**                                                       |       | $                                   | 2,666      |                        | $          | 7                                                     |       | $                               | 154        |                           | $          | — |   | $ | 2,827 |   |

 

14

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**10.          COMMITMENTS ANDCONTINGENCIES**

 

On January 12,2005, a purported class action was filed against the Company in the UnitedStates District Court for the District of Connecticut.  The complaint alleges that, under applicablefederal and state law, certain former and current employees should havereceived overtime compensation.  Theplaintiffs in this case are seeking unspecified actual damages, penalties andattorneys’ fees. At this stage in these proceedings, the Company is unable topredict the outcome of this case, which the Company is vigorouslydefending.  The Company is engaged inefforts to resolve these claims.

 

In addition, from time to time, the Company is named as adefendant in legal actions arising from its normal business activities.Although the amount of any liability that could arise with respect to currentlypending actions, including the matter specifically described above, cannot beaccurately predicted, the Company does not believe that the resolution of anypending action will have a material adverse effect on its financial position orresults of operations.

 

**11.          SEGMENT ANDENTERPRISE WIDE DISCLOSURES**

 

***Operating Segment***.  Under SFAS No. 131, "Disclosuresabout Segments of an Enterprise and Related Information," a company may berequired to report segmented information about separately identifiable parts ofits business, which both (i) meet the definition of an “operating segment”under SFAS No. 131, and (ii) exceed certain quantitative thresholds establishedin SFAS No. 131.  The Company hasdetermined that its business is comprised of one operating segment: the design,manufacture and sale of maternity apparel and related accessories. While theCompany offers a wide range of products for sale, the substantial portion ofour products are initially distributed through the same distributionfacilities, many of our products are manufactured at common contractmanufacturer production facilities, our products are marketed through a commonmarketing department, and these products are sold to a similar customer base,consisting of expectant mothers.

 

***Geographic Information***.  Information concerning theCompany’s operations by geographic area are as follows (in thousands): 

 
| ** **                              | ** ** | **Three Months Ended,  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **2005**                           | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Net Sales to Unaffiliated Customers** |       |                               |       |                            |       |   |   |   |   |
| United States                           |       | $                                  | 137,159    |                            | $          | 124,364 |   | $ | 267,842 |   | $ | 254,414 |   |
| Canada                                  |       | $                                  | 2,872      |                            | $          | 1,439 |   | $ | 5,808 |   | $ | 3,084 |   |
|                                    |       |                               |       |                            |       |   |   |   |   |
| ** **                              | ** ** | **March 31, 2005**                 | ** ** | **September 30, 2004**          | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                              | ** ** | ** **                         | ** ** | **(As Restated-See Note 2)**    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Long-Lived Assets**                   |       |                               |       |                            |       |   |   |   |   |
| United States                           |       | $                                  | 78,743     |                            | $          | 76,423 |   |   |   |   |   |
| Canada                                  |       | $                                  | 2,359      |                            | $          | 1,482 |   |   |   |   |   |
| Costa Rica                              |       | $                                  | 1,200      |                            | $          | 1,200 |   |   |   |   |   |

 

***Major Customers*****. **For theperiods presented, the Company didnot have any one customer who represented more than 10% of its net sales.

 

**12.  INTEREST EXPENSE, NET**

 

Interestexpense, net is comprised of the following:

 
| ** **            | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|-----------------------|------------|----------------------------------------|------------|---------------------------------|------------|
| ** **            | ** ** | **2005**                               | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Interest expense      |       | $                                      | 3,875      |                            | $          | 3,733 |   | $ | 7,653 |   | $ | 7,462 |   |
| Interest income       |       | (18                                    | )          | (31                             | )          | (41 | ) | (69 | ) |
| Interest expense, net |       | $                                      | 3,857      |                            | $          | 3,702 |   | $ | 7,612 |   | $ | 7,393 |   |

 

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

 

**Restatement**

 

Wecompleted a review of our historical lease accounting methods to determinewhether these methods were in accordance with the views expressed by the Officeof the Chief Accountant of the Securities and Exchange Commission (“SEC”) onFebruary 7, 2005 in a letter to the American Institute of Certified PublicAccountants and other recent interpretations regarding certain operating leaseaccounting issues and their application under accounting principles generallyaccepted in the United States of America (“GAAP”). As a result of our review,we determined that, with regard to our method of accounting for leases, ourhistorical methods of accounting for rent holidays and tenant improvementallowances, and of determining the amortization period for leaseholdimprovements for certain leased properties, were not in accordance with GAAP.As a result, on May 10, 2005, we filed a Current Report on Form 8-K with theSEC announcing our decision to restate the previously issued consolidatedfinancial statements contained in our Annual Report on Form 10-K for the year endedSeptember 30, 2004 and our Quarterly Report on Form 10-Q for the quarterlyperiod ended December 31, 2004  (the “Restatement”).

 

*Rent Holiday*. We historically haverecognized rent holiday periods and scheduled rent increases on a straight-linebasis over the lease term beginning with the commencement date of the lease,which is typically the store opening date. We have determined that the leaseterm should commence on the date we take possession of the leased property,which is generally four to six weeks prior to a store’s opening date.

 

*Tenant Improvement Allowances.*Wehistorically accounted for tenant improvement allowances as reductions to therelated leasehold improvement assets in our consolidated balance sheets and asreductions of capital expenditures in investing activities on the consolidatedstatements of cash flows. We have now determined that allowances should berecorded as deferred rent liabilities in our consolidated balance sheets and asa component of operating activities in our consolidated statements of cashflows.

 

*Amortization of Leasehold Improvements.*Historically, the life used for certain leasehold improvements by us in someinstances was longer than the straight-line rent expense period for suchrelated leases. As part of our review associated with lease matters, we havedetermined that the amortization period for leasehold improvements should beconsistent with the straight-line rent expense period for each of our leases.The lives for all leasehold improvements have been reviewed to ensure that theamortization is now recorded based on the lesser of the estimated useful lifeof the asset or the lease term.

 

The primary effects of the correctionsare:  (i) to accelerate the rent expenseon properties we occupied before payment of rents was required (rent holidays);(ii) to increase depreciation and amortization expense and decrease storeoccupancy expense (both of which are components of selling, general andadministrative expenses) to reflect the proper accounting for tenant improvementallowances; and (iii) to accelerate the amortization of leasehold improvementassets on those leased properties where the lease term is shorter than theestimated useful economic life of those assets. The cumulative effect of these accounting changes is areduction to retained earnings of $2.5 million as of the beginning of fiscal2004 and incremental decreases to retained earnings of $0.8 million and $0.3million for fiscal 2004 and the first quarter of fiscal 2005,respectively.  The Restatement decreased reported diluted earnings per share by $0.15and $0.06, respectively, for fiscal 2004 and the first quarter of fiscal2005.

 

The consolidated financial statements included in this Form 10-Q havebeen restated to reflect the adjustments described above.  See Note 2 of the Notes To ConsolidatedFinancial Statements included in this Form 10-Q for a summary of the impact ofthe Restatement on (i) the consolidated balance sheet as of September 30, 2004,(ii) the consolidated statements of operations for the three and six monthsended March 31, 2004 and (iii) the consolidated statement of cash flows for thesix months ended March 31, 2004.

 

As soon as practicable, we will also restate our consolidated financialstatements contained in our Annual Report on Form 10-K for the year endedSeptember 30, 2004 and our Quarterly Report on Form 10-Q for the quarterlyperiod ended December 31, 2004.

 

###### **Results of Operations**

 

The followingtables set forth certain operating data as a percentage of net sales and as a percentagechange for the three and six months ended March 31:

 

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| ** **                                        | ** ** | **% of Net Sales (1)**             | ** ** | **% Period to Period  Increase (Decrease)** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **Three  Months Ended  March 31,** | ** ** | **Six  Months Ended  March 31,**            | ** ** | **Three  Months****Ended  March 31,** | ** ** | **Six  Months  Ended  March 31,** | ** ** |
| ** **                                        | ** ** | **2005**                           | ** ** | **(As  Restated-  See Note 2)  2004**       | ** ** | **2005** | ** ** | **(As  Restated-  See Note 2)  2004** | ** ** | **2005 vs.  2004** | ** ** | **2005 vs.  2004** | ** ** |
| Net sales                                         |       | 100.0                              | %          | 100.0                                       | %          | 100.0 | % | 100.0 | % | 11.3 | % | 6.3 | % |
| Cost of goods sold (2)                            |       | 49.9                               |       | 47.5                                        |       | 48.6 |   | 47.1 |   | 16.9 |   | 9.6 |   |
| Gross profit                                      |       | 50.1                               |       | 52.5                                        |       | 51.4 |   | 52.9 |   | 6.3 |   | 3.3 |   |
| Selling, general and  administrative expenses (3) |       | 47.5                               |       | 49.2                                        |       | 48.8 |   | 48.6 |   | 7.4 |   | 6.8 |   |
| Operating income                                  |       | 2.6                                |       | 3.3                                         |       | 2.6 |   | 4.3 |   | (10.8 | ) | (36.3 | ) |
| Interest expense, net                             |       | 2.8                                |       | 2.9                                         |       | 2.8 |   | 2.9 |   | 4.2 |   | 3.0 |   |
| Income (loss) before income  taxes                |       | (0.1                               | )          | 0.4                                         |       | (0.2 | ) | 1.4 |   | (136.5 | ) | (115.7 | ) |
| Income tax provision                              |       | (0.0                               | )          | 0.2                                         |       | (0.1 | ) | 0.6 |   | (133.3 | ) | (115.4 | ) |
| Net income (loss)                                 |       | (0.1                               | )%         | 0.2                                         | %          | (0.1 | )% | 0.8 | % | (138.6 | )% | (115.9 | )% |

 

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(1)     Components may not add to total due torounding.

 

(2)     The “Cost of goods sold”line item includes: merchandise costs (including customs duty expenses),expenses related to inventory shrinkage in our warehouses and distributioncenters, product related corporate expenses (including expenses related to ourpayroll, benefit costs and operating expenses of our buying departments),inventory reserves, including lower of cost or market reserves, inbound freightcharges, purchasing and receiving costs, inspection costs, warehousing costs,internal transfer costs, and the other costs of our distribution network.

 

(3)     The “Selling, general andadministrative expenses” line item includes:**advertisingand marketing expenses, corporate administrative expenses, store expenses (includingstore payroll and store occupancy expenses), store opening and store closingexpenses, and store asset impairment charges.

 

The following table sets forth certain information concerning thenumber of our stores and leased departments for the periods indicated:

 
| ** **            | ** ** | **Three Months Ended** | ** ** |
|-----------------------|------------|------------------------|------------|
| ** **            | ** ** | **March 31, 2005**     | ** ** | **March 31, 2004** | ** ** |
| **Retail  Locations** | ** ** | **Stores**             | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** | **Stores** | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** |
| Beginning of period   |       | 880                    |       | 231 |   | 1,111 |   | 870 |   | 157 |   | 1,027 |   |
| Opened                |       | 8                      |       | 497 |   | 505 |   | 22 |   | — |   | 22 |   |
| Closed                |       | (19                    | )          | — |   | (19 | ) | (15 | ) | (2 | ) | (17 | ) |
| End of period         |       | 869                    |       | 728 |   | 1,597 |   | 877 |   | 155 |   | 1,032 |   |
|                  |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| ** **            | ** ** | **Six Months Ended**   | ** ** |
| ** **            | ** ** | **March 31, 2005**     | ** ** | **March 31, 2004** | ** ** |
| **Retail  Locations** | ** ** | **Stores**             | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** | **Stores** | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** |
| Beginning of period   |       | 883                    |       | 232 |   | 1,115 |   | 851 |   | 155 |   | 1,006 |   |
| Opened                |       | 20                     |       | 498 |   | 518 |   | 46 |   | 3 |   | 49 |   |
| Closed                |       | (34                    | )          | (2 | ) | (36 | ) | (20 | ) | (3 | ) | (23 | ) |
| End of period         |       | 869                    |       | 728 |   | 1,597 |   | 877 |   | 155 |   | 1,032 |   |

 

Our fiscalyear ends on September 30.  Allreferences in this discussion to our fiscal years refer to the fiscal yearended on September 30 in the year mentioned. For example, our “fiscal 2005” will end on September 30, 2005.

 

 

**Three Months Ended March 31, 2005 and 2004**

 

***Net Sales.***  Our netsales for the second quarter of fiscal 2005 increased by 11.3%, or $14.2million, to $140.0 million from $125.8 million for the second quarter offiscal 2004. The increase in net sales for the quarter was driven primarily byour new Oh Baby! By MotherhoodTM licensed arrangement with Kohl’s®, which beganduring the second quarter of fiscal 2005. In addition, our sales for the quarter compared to last year benefitedfrom our increased retail location

 

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count, driven by the addition of 569 Sears®leased departments since March 2004, as well as increases in sales from ourmarketing partnerships and internet business, partially offset by a decrease incomparable store sales.  Comparable storesales for the second quarter of fiscal 2005 decreased by 3.0%, based on 898locations, versus a comparable store sales increase of 0.2% during the secondquarter of fiscal 2004, based on 849 locations.  The decrease in comparable storesales in the second quarter of fiscal 2005 reflected the continued strongcompetitive pressures in the maternity apparel business, the cooler than normalweather conditions during March 2005, and having one less day in this year’ssecond quarter compared to last year, which was a leap year.

 

As of March31, 2005, we operated a total of 869 stores and 1,597 total retail locations,compared to 877 stores and 1,032 total retail locations as of March 31,2004.  As of March 31, 2005 our storetotal included 43 multi-brand stores, including 8 Destination Maternitysuperstores, with the remaining multi-brand stores predominantly under the MimiMaternity brand.  In comparison, as ofMarch 31, 2004, we operated 15 multi-brand stores, including one DestinationMaternity superstore.  These multi-brandstore figures exclude our A Pea in the Pod stores, which havetraditionally carried a full line of both A Pea in the Pod and Mimi Maternitybranded merchandise.  During the secondquarter of fiscal 2005, we opened 497 leased department locations and 8 stores,including 3 multi-brand stores, and closed 19 stores, with 9 of these storeclosings related to multi-brand store openings, including the opening of 2Destination Maternity superstores.  Theincrease in leased department locations during the quarter resulted from theexpansion of our proprietary Two HeartsTM Maternity collection to an additional497 Sears locations during late March 2005, bringing the total number of ourSears leased departments to 569 locations.

 

***Gross Profit.***  Our grossprofit for the second quarter of fiscal 2005 increased by 6.3%, or $4.1million, to $70.2 million from $66.1 million for the second quarter of fiscal2004, reflecting the increase in net sales, partially offset by a decrease ingross margin.  Gross profit as a percentage of net sales (gross margin)for the second quarter of fiscal 2005 decreased by 2.4 percentage points of netsales to 50.1% from 52.5% for the second quarter of fiscal 2004.  Thedecrease in gross margin versus last year primarily reflects the plannedlower gross margin associated with sales from our new licensed arrangement,which began during the second quarter of fiscal 2005.

 

***Selling, General andAdministrative Expenses.***  Our selling, general andadministrative expenses for the second quarter of fiscal 2005 increased by7.4%, or $4.6 million, to $66.5 million from $61.9 million for the secondquarter of fiscal 2004.  Compared to thesecond quarter of fiscal 2004, store rent and related expenses increased by$1.3 million.  As a percentage of net sales, selling, general andadministrative expenses decreased to 47.5% for the second quarter of fiscal2005 compared to 49.2% for the second quarter of fiscal 2004.  This decrease in the expense percentageresulted primarily from the favorable expense leverage from the addition of ourlicensed business and a continued sharp focus on expense control, partiallyoffset by the unfavorable expense leverage resulting from our 3.0% decrease incomparable store sales, as well as increased charges for store assetimpairments.  We incurredimpairment charges for write-downs of store long-lived assets of $0.8 millionfor the second quarter of fiscal 2005 versus $0.1 million for the secondquarter of fiscal 2004, and incurred charges relating to store closings of $0.2million for each of the second quarter of fiscal 2005 and the second quarter offiscal 2004.

 

***Operating Income.***  Our operating income for the secondquarter of fiscal 2005 decreased by 10.8%, or $0.4 million, to $3.7 millionfrom $4.1 million for the second quarter of fiscal 2004, due to higherselling, general and administrative expenses, which more than offset the impactof increased sales volume and gross profit. Operating income as a percentage of net sales (operating income margin)for the second quarter of fiscal 2005 decreased to 2.6% from 3.3% for thesecond quarter of fiscal 2004, primarily due to the adverse impact on operatingincome margin of our 3.0% decrease in comparable store sales.

 

***Interest Expense, Net.***  Our netinterest expense for the second quarter of fiscal 2005 increased by 4.2%, or$0.2 million, to $3.9 million from $3.7 million for the second quarter offiscal 2004.  The increase in interestexpense for the second quarter of fiscal 2005 resulted primarily from theincreased amortization expense of deferred financing costs related to our newcredit facility entered into in October, 2004, and having some borrowings underour credit facility during the current year second quarter.  During the quarter ended March 31, 2005, ouraverage level of direct borrowings under our credit facility was $5.3 million,but we did not have any direct borrowings under our credit facility as of March31, 2005.  We did not have any directborrowings under our credit facility during fiscal 2004 or the first quarter offiscal 2005.

 

***Income Tax Provision.*** Our effective tax rate was a benefit of40.0% for the second quarter of fiscal 2005 and a provision of 43.3% for thesecond quarter of fiscal 2004.  Our effective tax rate for the full year fiscal2004 was 40.7%.

 

***Net Income (Loss).***  Netincome (loss) for the second quarter of fiscal 2005 was $(0.1) million, or$(0.02) per share (diluted) compared to $0.3 million, or $0.05 per share(diluted) for the second quarter of fiscal 2004.

 

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**Six Months Ended March 31, 2005 and 2004**

*** ***

***Net Sales.*****  Our net sales for the first six months offiscal 2005 increased 6.3%, a $16.2 million increase, to$273.7 million from $257.5 million for the first six months of fiscal2004.  The increase in net sales for the first six months of fiscal 2005 wasdriven primarily by our new Oh Baby! By MotherhoodTM licensed arrangement, whichbegan during the second quarter of fiscal 2005. In addition, our sales for the first six months compared to last yearbenefited from our increased retail location count, driven by the addition of569 Sears® leased departments since March 2004, as well as increases in salesfrom our marketing partnerships and internet business, partially offset by adecrease in comparable store sales. Comparable store sales for the first six months of fiscal 2005 decreasedby 3.7%, based on 866 locations, versus a comparable store sales decrease of2.7% during the first six months of fiscal 2004, based on 820 locations.  The decrease in comparable store salesin the first six months of fiscal 2005 reflected the continued strongcompetitive pressures in the maternity apparel business.  For the first six months of fiscal 2005, weopened 498 leased department locations and 20 stores, including 7 multi-brandstores, and closed 34 stores, with 17 of these store closings related tomulti-brand store openings, including the opening of 4 Destination Maternitysuperstores.

 

***Gross Profit*.**   Our gross profit for the first six months of fiscal 2005 increased 3.3%, a $4.5million increase, to $140.6 million compared to $136.1 million for the firstsix months of fiscal 2004, reflecting the increase in net sales, partiallyoffset by a decrease in gross margin. Gross profit as a percentage of net salesfor the first six months of fiscal 2005 decreased by 1.5 percentage points ofnet sales to 51.4% from 52.9% for the first six months of fiscal 2004.  The decrease in gross margin versus last yearprimarily reflects the planned lower gross margin associated with salesfrom our new licensed arrangement, which began during the second quarter offiscal 2005, as well as some impact from additional markdowns recognized in thefirst quarter compared to last year to stimulate sales and reduce Fall seasonalinventory levels.

 

***Selling, General andAdministrative Expenses*.**  Our selling,general and administrative expenses for the first six months of fiscal 2005increased by 6.8%, an $8.5 million increase, to $133.6 million from $125.1million for the first six months of fiscal 2004. Compared to the first sixmonths of fiscal 2004, store rent and related expenses increased by $3.2million.  As a percentage of net sales, operating expenses increasedslightly to 48.8% for the first six months of fiscal 2005 compared to 48.6% forthe first six months of fiscal 2004. This slight increase in the expense percentage resulted primarily fromthe favorable expense leverage from the addition of our licensed business,which was slightly more than offset by the unfavorable expense leverageresulting from our 3.7% decrease in comparable store sales, as well asincreased charges for store asset impairments and store closings.  Weincurred impairment charges for write-downs of store long-lived assets of $1.3million for the first six months of fiscal 2005 versus $0.2 million for the firstsix months of fiscal 2004, and incurred charges relating to store closings of$0.8 million for the first six months of fiscal 2005 versus $0.4 million forthe first six months of fiscal 2004. The majority of the store closing chargesfor the first six months of fiscal 2005 were for stores closed in connectionwith multi-brand store openings.

 

***Operating Income*.**   Our operating income for the first six months of fiscal 2005 decreased by36.3%, a $4.0 million decrease, to $7.0 million compared to $11.0 million inthe first six months of fiscal 2004, due to higher selling, general andadministrative expenses, which more than offset the impact of increased salesvolume and gross profit.  Operatingincome as a percentage of net sales for the first six months of fiscal 2005decreased to 2.6% from 4.3% in the comparable period of fiscal 2004, primarilydue to the adverse impact on operating income margin of our 3.7% decrease incomparable store sales.

 

***Interest Expense, Net*.**  Our net interest expense for the first six months of fiscal 2005 increased by3.0%, or $0.2 million, to $7.6 million compared to $7.4 million for thefirst six months of fiscal 2004.  Theincrease in interest expense resulted primarily from the increased amortizationexpense of deferred financing costs related to our new credit facility enteredinto in October, 2004, and having some borrowings under our credit facilityduring the current year second quarter.    During the six months ended March 31, 2005, our average level of directborrowings under our credit facility was $2.6 million, but we did not have anydirect borrowings under our credit facility as of March 31, 2005.  We did not have any direct borrowings underour credit facility during fiscal 2004 or the first quarter of fiscal 2005.

 

***Income Taxes*.**   Our effective income tax rate was a benefit of 39.9% for the first six monthsof fiscal 2005 and a provision of 40.7% for the first six months of fiscal2004.  Our effective tax rate for the full year fiscal 2004 was 40.7%.

 

***Net Income (Loss).**** *Net income (loss) for the first six months offiscal 2005 was $(0.3) million, or $(0.07) per common share (diluted), comparedto $2.2 million, or $0.39 per common share (diluted), for the first six monthsof fiscal

 

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2004.

 

**Seasonality**

 

Our business, like that of many other retailers, is seasonal.  Our quarterly net sales have historically beenhighest in our third fiscal quarter, corresponding to the Spring sellingseason, followed by the first fiscal quarter, corresponding to the Fall/holidayselling season. Given the typically higher gross margin we experience in thethird fiscal quarter compared to other quarters, the relatively fixed nature ofmost of our operating expenses and interest expense, and the historicallyhigher sales level in the third quarter, we have typically generated a verysignificant percentage of our full year operating income and net income duringthe third quarter. Results for any quarterare not necessarily indicative of the results that may be achieved for a fullfiscal year.  Quarterly results may fluctuate materially depending upon,among other things, the timing of new store openings and new leased departmentopenings, net sales and profitability contributed by new stores and leaseddepartments, increases or decreases in comparable store sales, the timing ofthe fulfillment of purchase orders under our product and license arrangement,adverse weather conditions, shifts in the timing of certain holidays andpromotions, changes in inventory and production levels and the timing ofdeliveries of inventory, and changes in our merchandise mix.

 

**Liquidity and Capital Resources**

 

Our cash needs have primarily been for: (i) debt service,(ii) capital expenditures, including leasehold improvements, fixtures andequipment for new stores; store relocations and expansions of our existingstores as well as improvements and new equipment for our distribution andcorporate facilities and information systems, and (iii) working capital,including inventory to support our new business initiatives and our new andexisting stores.  We have historicallyfinanced these capital requirements from cash flows from operations, borrowingsunder our credit facility or available cash balances.

 

Cash and cash equivalents decreased by $5.6 million during the firstsix months of fiscal 2005 compared to an increase of****$3.0million for the first six months of fiscal 2004.  Cash used in operationswas $0.4 million for the first six months of fiscal 2005, compared to cashprovided by operations of $9.2 million for the first six months of fiscal 2004,a decrease of $9.5 million.  This decrease in cash providedby operations was primarily the result of an increase in the amount of cashused to increase operating working capital, especially inventory, to supportour sales growth and new initiatives with Kohl’s and Sears.  During thefirst six months of fiscal 2004, we used our cash provided by operationsprimarily to pay for capital expenditures. During the first six months of fiscal 2005, we paid for our capitalexpenditures through the utilization of proceeds from sale of short-terminvestments as well as utilizing a portion of our cash and cash equivalents.

 

For the firstsix months of fiscal 2005, we spent $11.9 million on capital expenditures,including $9.3 million for leasehold improvements, fixtures and equipmentprincipally for new store facilities, as well as improvements to existingstores, and $2.6 million for our distribution and corporate facilities andinformation systems. This compares to $9.2 million in capital expendituresfor the first six months of fiscal 2004, of which $7.2 million was spentfor new store facilities and improvement to existing stores and retaillocations, and $2.0 million for our distribution and corporate facilitiesand information systems.  The increase in capital expenditures wasprimarily due to increased expenditures compared to last year for new storeopenings, primarily due to multi-brand store openings, as well as increasedexpenditures for store relocations and expansions, and improvements to existingstores.

 

OnMarch 5, 2003, our Board of Directors approved a share repurchase programunder which we were authorized to repurchase up to $10.0 million of ouroutstanding common stock from time to time in private transactions or on theopen market through March 4, 2005, the expiration date of the sharerepurchase program.  As of March 31, 2005, we hadrepurchased and retired 142,269 shares in the aggregate pursuant to thisprogram at a total cost of $3.2 million, at an average cost of $22.79 pershare.  No repurchases were made during the six months ended March 31, 2005.  The indenture governing the New SeniorNotes and the terms of both our former and new credit facilities containrestrictions that place limits on certain payments by us, including payments torepurchase shares of our common stock. Our repurchases of common stock have been made in compliance with allrestrictions under the indenture governing the New Senior Notes and the termsof both the former and new credit facilities (see below).

 

OnOctober 15, 2004, we entered into a new five-year $60.0 million seniorsecured revolving credit facility (the “New Credit Facility”) which replacedour former $60 million credit facility. The New Credit Facility will mature onOctober 15, 2009. There are nofinancial covenant requirements under the New Credit Facility unless either (i) Excess Availability (asdefined in the agreement) falls below $10 million, or (ii) averageFinancial Covenant Adjusted Availability (as defined in the agreement) for anycalendar month is less than $15 million. If either of the events in items(i) or (ii) above

 

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occurs, we would be required to meet acertain minimum fixed charge coverage ratio (which increases from 1.00x duringthe first two years of the New Credit Facility to 1.10x during the fifth yearof the New Credit Facility).  During the period of time that the New CreditFacility was outstanding during the first six months of fiscal 2005, weexceeded the requirements for Excess Availability and Financial CovenantAdjusted Availability.

 

As of March 31, 2005, outstanding borrowings under theNew Credit Facility consisted of no direct borrowings and $7.4 million inletters of credit, with available borrowings of $52.6 million.  Our average level of direct borrowings underour credit facility was $2.6 million for the first six months of fiscal 2005,compared to no direct borrowings under our credit facility during fiscal2004.  We expect that we will have direct borrowings under our New CreditFacility during certain periods of fiscal 2005, reflecting seasonal variationsin cash flow.

 

Our management believes that our current cash and working capitalpositions, expected operating cash flows and available borrowing capacity underour credit facility will be sufficient to fund our working capital, capitalexpenditures and debt repayment requirements and to fund stock and/or debtrepurchases, if any, for at least the next twelve months.

 

**Critical Accounting Policies and Estimates**

 

Our consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States. Thesegenerally accepted accounting principles require management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of net sales and expenses duringthe reporting period.

 

We believe that the following discussion addresses our criticalaccounting policies, which are those that are most important to the portrayalof our financial condition and results of operations and require management’smost difficult, subjective and complex judgments, often as a result of the needto make estimates about the effect of matters that are inherentlyuncertain.  If actual results were to differ significantly from estimatesmade, future reported results could be materially affected.  However, weare not currently aware of any reasonably likely events or circumstances thatwould result in materially different results.

 

Our senior management has reviewed these critical accounting policiesand estimates and the related Management’s Discussion and Analysis of FinancialCondition and Results of Operations with the Audit Committee of our Board ofDirectors.

 

***Inventories.*** We value our inventories, which consistprimarily of maternity apparel, at the lower of cost or market. Cost isdetermined on the first-in, first-out method (FIFO) and includes the cost ofmerchandise, freight, duty, agent commissions and broker fees. A periodicreview of inventory quantities on hand is performed in order to determine ifinventory is properly valued at the lower of cost or market. Factors related tocurrent inventories such as future consumer demand and fashion trends, currentaging, current analysis of merchandise based on receipt date, current andanticipated retail markdowns or wholesale discounts, and class or type ofinventory are analyzed to determine estimated net realizable values. Criteria utilized by the Company to quantify aging trends include factors suchas the amount of merchandise received within the past twelve months,merchandise received more than one year before with quantities on-hand inexcess of 12 months of sales, and merchandise currently selling belowcost.  A provision is recorded to reduce the cost of inventories to theestimated net realizable values, if required. Inventories as of March 31, 2005and September 30, 2004 totaled $107.5 million and $92.7 million,respectively, representing approximately 38.6% and 34.2% of total assets,respectively. Given the significance of inventories to our consolidated financialstatements, the determination of net realizable values is considered to be acritical accounting estimate. Any significant unanticipated changes in thefactors noted above could have a significant impact on the value of ourinventories and our reported operating results.

 

***Long-Lived Assets.***  Ourlong-lived assets consist principally of store leasehold improvements and areincluded in the “Property, Plant and Equipment, net” line item in ourconsolidated balance sheets. These long-lived assets are recorded at cost andare amortized using the straight-line method over the shorter of the lease termor their estimated useful life.  Net property, plant and equipment as ofMarch 31, 2005 and September 30, 2004 totaled $81.1 million and $77.9 million,respectively, representing approximately 29.1% and 28.8% of total assets,respectively.

 

In assessing potential impairment of these assets, we periodicallyevaluate the historical and forecasted operating results and cash flows on astore-by-store basis. Newly-opened stores may take time to generate positiveoperating and cash flow results. Factors such as (i) store type, that is,company store or leased department, (ii) store concept, that is, Motherhood,Mimi Maternity, A Pea in the Pod or Destination Maternity, (iii) storelocation, for example, urban area versus

 

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suburb, (iv) current marketplace awareness ofour brands, (v) local customer demographic data, (vi) anchor stores within themalls in which our stores are located and (vii) current fashion trends are allconsidered in determining the time frame required for a store to achievepositive financial results, which is assumed to be within two years from thedate a store location is opened.  Ifeconomic conditions are substantially different from our expectations, thecarrying value of certain of our long-lived assets may become impaired. As a result of our impairment assessment, we recorded write-downs of long-livedassets of $1.3 million for the first six months of fiscal 2005, and $0.2million for the first six months of fiscal 2004.

 

***Goodwill*.** The purchase method of accounting for business combinations requires the use ofestimates and judgments to allocate the purchase price paid for acquisitions tothe fair value of the net tangible and identifiable intangible assets. Goodwill represents the excess of the aggregate purchase price over the fairvalue of net assets acquired in business

combinationsand is separately disclosed in our consolidated balance sheets.  As ofboth March 31, 2005 and September 30, 2004, goodwill totaled $50.4million, representing approximately 18.1% and 18.6%, respectively, of totalassets.  In June 2001, the FASB issued SFAS No. 142, “Goodwill andOther Intangible Assets.” SFAS No. 142 requires that goodwill no longer beamortized, but instead be tested for impairment at least annually or asimpairment indicators arise.

 

The impairment test requires us to compare the fair value of businessreporting units to their carrying value, including assigned goodwill.  Inassessing potential impairment of goodwill, we have determined that we have onereporting unit for purposes of applying SFAS No. 142 based on our reportingstructure. The fair value of our single reporting unit is determined based onthe fair market value of our outstanding common stock on a control basis. Thefactors taken into account in determining the fair market value of ouroutstanding common stock on a control basis are: (i) the trading value ofour outstanding common stock on an established public market, and (ii) thepremium over the trading price of our outstanding common stock that an investorwould pay for a control ownership interest in our Company, as determinedthrough a third party evaluation. The carrying value of our single reportingunit, expressed on a per share basis, is represented by our book value pershare of outstanding common stock. We performed the initial adoption impairmenttest in early fiscal 2002. The results of the initial impairment test and theannual impairment test performed as of September 30, 2004, 2003 and 2002indicated the fair value of the reporting unit exceeded the carryingvalue.  As of September 30, 2004, ourbook value was $12.08 per share of outstanding common stock and the closingtrading price of our common stock was $14.50 per share. If the fair value ofour outstanding common stock on a control basis were less than $12.08 per shareon September 30, 2004, our goodwill would have become impaired.

 

***Accounting for Income Taxes.***  As partof the process of preparing our consolidated financial statements, we arerequired to estimate our income taxes in each of the jurisdictions in which weoperate. This process requires us to estimate our actual current tax exposuretogether with assessing temporary differences resulting from differingtreatment of items, such as depreciation of property and equipment andvaluation of inventories, for tax and accounting purposes. We determine ourprovision for income taxes based on federal and state tax laws and regulationscurrently in effect, some of which have been recently revised. Legislationchanges currently proposed by certain of the states in which we operate, ifenacted, could increase our transactions or activities subject to tax. Any suchlegislation that becomes law could result in an increase in our state incometax expense and our state income taxes paid, which could have a material andadverse effect on our net income.

 

The temporary differences between the book and tax treatment of incomeand expenses result in deferred tax assets and liabilities, which are includedwithin our consolidated balance sheets. We must then assess the likelihood thatour deferred tax assets will be recovered from future taxable income. Actualresults could differ from this assessment if adequate taxable income is notgenerated in future periods. As of March 31, 2005 and September 30, 2004,net deferred tax assets totaled $18.3 million and $18.0 million, respectively,representing approximately 6.6% and 6.6%, respectively, of total assets. To theextent we believe that recovery of the deferred tax assets is not more likelythan not, we must establish a valuation allowance. To the extent we establish avaluation allowance or change the allowance in a period, income tax expensewill be impacted.

 

***Accounting for Contingencies*.** From time to time, we are named as a defendant in legal actions arisingfrom our normal business activities.  We account for contingencies such asthese in accordance with SFAS No. 5, “Accounting for Contingencies.”  SFASNo. 5 requires us to record an estimated loss contingency when informationavailable prior to issuance of our consolidated financial statements indicatesthat it is probable that an asset has been impaired or a liability has beenincurred at the date of the consolidated financial statements and the amount ofthe loss can be reasonably estimated. SFAS No. 5 further states that when there is a range of loss and noamount within that range is a better estimate than any other, then the minimumamount of the range shall be accrued.  Accounting for contingenciesarising from contractual or legal proceedings requires our management, afterconsultations with outside legal counsel, to use its best judgment whenestimating an accrual related to such contingencies.  As additionalinformation becomes known, our accrual for a loss contingency could fluctuate,thereby creating variability in our results of operations from period toperiod. Likewise, an actual loss arising from a loss contingency whichsignificantly exceeds the amount accrued for in our consolidated financial

 

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statements could have a material adverseimpact on our operating results for the period in which such actual loss becomesknown.

 

**New Accounting Pronouncements**

 

***SFAS No. 123(R).***  In December 2004, the FASB revised SFASNo. 123 by issuing SFAS No. 123(R), “Share-Based Payment.”  SFAS No. 123(R) replaces SFAS No. 123 and APBOpinion No. 25 and establishes standards for the accounting for transactions inwhich an entity exchanges its equity instruments for goods and services.  SFAS No. 123(R) requires that thecompensation cost relating to share-based payment transactions be recognized infinancial statements, measured by the fair value of the equity or liabilityinstruments issued, and is effective as of the first reporting period of thefiscal year that begins after June 15, 2005 for public entities that do notfile as small business issuers.  The fairvalue-based method of SFAS No. 123 is similar in most respects to the fairvalue-based method under SFAS No. 123(R); however, certain transition rules ofSFAS No. 123(R) may affect the impact on our consolidated financial position orresults of operations.  Such impact, if any,on our consolidated financial position or results of operations has not yetbeen determined.  We are currentlyevaluating the provisions of SFAS No. 123(R) and plans to adopt it in the firstquarter of Fiscal 2006.

 

**Forward-Looking Statements**

 

Some of the information in this report, including the informationincorporated by reference (as well as information included in oral statementsor other written statements made or to be made by us), contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended (the “Exchange Act”). The forward-looking statements involve anumber of risks and uncertainties. A number of factors could cause our actual results,performance, achievements or industry results to be materially different fromany future results, performance or achievements expressed or implied by theseforward-looking statements. These factors include, but are not limited to: leaseaccounting and restatements of historical financial statements, the success of our new business initiatives,future sales trends in our existing store base, changes in consumer spendingpatterns, raw material price increases, consumer preferences and overalleconomic conditions, the impact of competition and pricing, availability ofsuitable store locations, continued availability of capital and financing,ability to hire and develop senior management and sales associates, ability todevelop and source merchandise, ability to receive production from foreignsources on a timely basis, potential stock repurchases, potential debtrepurchases, war or acts of terrorism and other factors referenced in ourAnnual Report on Form 10-K, including those set forth under the caption “RiskFactors.”

 

In addition, these forward–looking statements necessarily depend uponassumptions, estimates and dates that may be incorrect or imprecise and involveknown and unknown risks, uncertainties and other factors. Accordingly, anyforward-looking statements included in this report do not purport to bepredictions of future events or circumstances and may not be realized.Forward-looking statements can be identified by, among other things, the use offorward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “seeks,”“pro forma,” “anticipates,” “intends,” “continues,” “could,” “estimates,” “plans,”“potential,” “predicts,” “goal,” “objective,” or the negative of any of theseterms, or comparable terminology, or by discussions of outlook, plans, goals,strategy or intentions. Forward-looking statements speak only as of the datemade. We assume no obligation to update any of these forward–looking statementsto reflect actual results, changes in assumptions or changes in other factorsaffecting these forward-looking statements.

 

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**Item 3****. Quantitative and QualitativeDisclosures About Market Risk**

 

Mothers Work is exposed to market risk from changes in interestrates.  We have not entered into any market sensitive instruments fortrading purposes.  The analysis below presents the sensitivity of themarket value of our financial instruments to selected changes in marketinterest rates.  The range of changes presented reflects our view ofchanges that are reasonably possible over a one-year period.

 

As of March 31, 2005, the principal components of our debt portfoliowere the $125.0 million of New Senior Notes and the $60.0 millioncredit facility, both of which are denominated in U.S. dollars.  The fairvalue of the debt portfolio is referred to as the “debt value.”  The NewSenior Notes bear interest at a fixed rated of 111⁄4%.  Although a change inmarket interest rates would not affect the interest incurred or cash flowrelated to this fixed rate portion of the debt portfolio, the debt value wouldbe affected.

 

Our revolving credit facility carries a variable interest rate that istied to market indices.  As of March 31, 2005, we had no direct borrowingsand $7.4 million of letters of credit outstanding under our creditfacility.  Borrowings under the credit facility would have borne interestat a rate between approximately 4.1% and 5.8% per annum as of March 31,2005.  Any future borrowings under the credit facility would, to theextent of outstanding borrowings, be affected by changes in market interestrates. A change in market interest rates on the variable portion of the debtportfolio impacts the interest incurred and cash flows, but does not impact thevalue of the financial instrument.

 

The sensitivity analysis as it relates to the fixed rate portion of ourdebt portfolio assumes an instantaneous 100 basis point move in interest ratesfrom their levels as of March 31, 2005, with all other variables heldconstant.  A 100 basis point increase in market interest rates wouldresult in a decrease in the value of the debt by approximately $4.8 million asof March 31, 2005.  A 100 basis point decline in market interest rateswould cause the debt value to increase by approximately $5.0 million as ofMarch 31, 2005.

 

Based on thevariable rate debt included in our debt portfolio as of March 31, 2005, a 100basis point increase in interest rates would result in additional interestincurred for the year of less than $0.1 million. A 100 basis point decrease ininterest rates would correspondingly lower our interest expense for the year byless than $0.1 million.

 

Other than as described above, we do not believe that the market riskexposure on other financial instruments is material.

 

**Item 4****. Controls and Procedures**

 

***(a) Evaluation of disclosurecontrols and procedures*****.**  Our disclosure controls and procedures aredesigned to ensure that information required to be disclosed by us in thereports that are filed or submitted under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms. These disclosurecontrols and procedures include controls and procedures designed to ensure thatinformation required to be disclosed under the Securities Exchange Act of 1934is accumulated and communicated to our management on a timely basis to allowdecisions regarding required disclosure.

 

In connectionwith our preparation of this Quarterly Report on Form 10-Q for the quarterended March 31, 2005, after consultation with the Company’s independentregistered public accounting firm, KPMG LLP, we implemented changes to ourmethod of accounting for leases, including our method of accounting for tenantimprovement allowances, rent expense during store build-out periods (rentholidays), and amortization of leasehold improvements.  These changes are consistent with the viewsexpressed by the Office of the Chief Accountant of the SEC on February 7, 2005in a letter to the American Institute of Certified Public Accountants and otherrecent interpretations regarding certain operating lease accounting issues andtheir application under generally accepted accounting principles.   Because of these changes in our leaseaccounting practices, we concluded that we had a material weakness in theeffectiveness of controls over the selection and monitoring of appropriatepractices used in accounting for leases during the quarter.   During the quarter ended March 31, 2005, weremediated the material weakness in internal control and the ineffectiveness ofour disclosure controls and procedures by conducting a review of our leaseaccounting practices, establishing new lease-related accounting policies, andcorrecting our method of accounting for tenant improvement allowances, rentholidays and amortization of leasehold improvements.  As a result, our Chief Executive Officer andChief Financial Officer each concluded that the Company’s disclosure controlsand procedures were effective as of March 31, 2005.

 

We evaluatedthe effectiveness of the design and operation of our disclosure controls andprocedures as of March 31,

 

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2005.  In performing thisevaluation, we considered the foregoing changes in our method of accounting forleases, as well as the remediation activities described above.  Based on this evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that as of March31, 2005, these controls and procedures were effective.

 

On May 5, 2005, the Audit Committee of ourBoard of Directors concluded that a restatement of the Company’s historicalfinancial statements was necessary to correct errors resulting from our priormethod of accounting for leases.   Therefore,we will file amendments to our Annual Report on Form 10-K for the year endedSeptember 30, 2004 and our Quarterly Report on Form 10-Q for the quarterlyperiod ended December 31, 2004 to restate the financial statements included inthose reports in order to reflect the revisions in the presentation of ourlease accounting.   The restatementsinvolve only non-cash adjustments and will not have any impact on ourpreviously reported sales, comparable store sales or our compliance with anyfinancial covenant under our revolving credit facility or other debtinstruments.

 

***(b) Change in Internal Controls*.**   Other than changes to our lease accountingpractices noted above, there have been no changes in internal control overfinancial reporting identified in connection with the foregoing evaluation thatoccurred during the fiscal quarter ended March 31, 2005, that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART II****. OTHER INFORMATION**

 

**Item 1****. Legal Proceedings**

 

On January 12,2005, a purported class action was filed against us in the United StatesDistrict Court for the District of Connecticut. The complaint alleges that, under applicable federal and state law,certain former and current employees should have received overtimecompensation.  The plaintiffs in thiscase are seeking unspecified actual damages, penalties and attorneys’ fees. Atthis stage in these proceedings, we are unable to predict the outcome of thiscase, which we are vigorously defending. We are engaged in efforts to resolve these claims.  We understand that similar proceedings havebeen brought against other retail companies.

 

In addition, from time to time, we are named as a defendant in legalactions arising from our normal business activities. Although the amount of anyliability that could arise with respect to currently pending actions, includingthe matter specifically described above, cannot be accurately predicted, we donot believe that the resolution of any pending action will have a materialadverse effect on our financial position or results of operations.

 

## **Item 6**.  Exhibits

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                              |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **       | ** ** | ** **                                                                                                                                                                                   |
| 10.1             |       | Description of the Company’s Non-Employee Directors  Compensation Policy.                                                                                                               |
| 31.1             |       | Certification  of the Chief Executive Officer Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                               |
| 31.2             |       | Certification  of the Executive Vice President-Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                      |
| 32.1             |       | Certification  of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                           |
| 32.2             |       | Certification  of the Executive Vice President-Chief Financial Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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*Incorporated by reference.

 

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**Sig****natures**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| MOTHERS WORK, INC. |     |
|--------------------|----------|
|               |     |   |   |
| Date: May 16, 2005 | By:      | **/s/ DAN W. MATTHIAS** | ** ** | ** ** |
|               |     | Dan W. Matthias | * * | * * |
| * *           | * * | *Chairman of the Board and  Chief Executive Officer* |   |   |
| * *           | * * | * * | * * |
|               |     |   |   |
| Date: May 16, 2005 | By:      | **/s/ EDWARD M. KRELL** | ** ** | ** ** |
|               |     | Edward M. Krell |   |   |
| * *           | * * | *Executive Vice President—  Chief Financial Officer* |   |   |
|                    |          |  |  |  |  |

 

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