**United States**

**Securities and ExchangeCommissionWashington, 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, 2007** |
| ** **                                         | ** ** | ** **                                                                                         |
| **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 registrantas specified in its charter)

| **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. Yes x No o

Indicate by check mark whether the Registrant is a largeaccelerated filer, an accelerated filer or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.

Large accelerated filer o                               Acceleratedfiler x                               Non-acceleratedfiler o

Indicateby check mark whether the Registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o No x

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

Common Stock, $.01 par value5,945,129 shares outstanding as of May 3, 2007

 

----

**MOTHERS WORK, INC. ANDSUBSIDIARIESINDEX**
| PART I.  FINANCIAL  INFORMATION |   |                                                                                        |
|--------------------------------------|--------|---------------------------------------------------------------------------------------------|
| Item 1.                              |   | Financial Statements  (unaudited)                                                           |   |   |
|                                 |   | Consolidated Balance  Sheets                                                                |   |   |
|                                 |   | Consolidated  Statements of Operations                                                      |   |   |
|                                 |   | Consolidated  Statements of Stockholders’ Equity and Comprehensive Income              |   |   |
|                                 |   | 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 1A.                             |   | Risk Factors                                                                                |   |   |
| Item 4.                              |   | Submission of  Matters to a Vote of Security Holders                                        |   |   |
| Item 6.                              |   | Exhibits                                                                                    |   |   |
|                                 |   |                                                                                        |   |   |
| Signatures                           |   |                                                                                        |   |   |

 

2

----

**PART I.  FINANCIAL INFORMATION**

**Item1.  Financial Statements**

**MOTHERS WORK, INC. ANDSUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

(in thousands, except share and per share amounts)

(unaudited)
| ** **                                                                                                                       | ** ** | **March 31, 2007** | ** ** | **September 30, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| **ASSETS**                                                                                                                       | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| Current  assets:                                                                                                                 |       |                         |       |                             |       |
| Cash and cash equivalents                                                                                                        |       | $                            | 7,144      |                             | $          | 18,904 |   |
| Short-term investments                                                                                                           |       | —                       |       | 9,425                            |       |
| Trade receivables, net                                                                                                           |       | 14,051                       |       | 11,631                           |       |
| Inventories                                                                                                                      |       | 98,435                       |       | 94,259                           |       |
| Deferred income taxes                                                                                                            |       | 6,018                        |       | 6,018                            |       |
| Prepaid expenses and other current assets                                                                                        |       | 4,144                        |       | 8,395                            |       |
| Total current assets                                                                                                             |       | 129,792                      |       | 148,632                          |       |
| Property,  plant and equipment, net                                                                                              |       | 73,162                       |       | 71,430                           |       |
| Assets  held for sale                                                                                                            |       | 700                          |       | 700                              |       |
| Other  assets:                                                                                                                   |       |                         |       |                             |       |
| Goodwill                                                                                                                         |       | 50,389                       |       | 50,389                           |       |
| Deferred financing costs, net of accumulated amortization of $1,534 and  $1,927                                                  |       | 3,012                        |       | 2,795                            |       |
| Other intangible assets, net of accumulated amortization of $2,452 and  $2,413                                                   |       | 653                          |       | 726                              |       |
| Deferred income taxes                                                                                                            |       | 13,710                       |       | 12,543                           |       |
| Other non-current assets                                                                                                         |       | 509                          |       | 521                              |       |
| Total other assets                                                                                                               |       | 68,273                       |       | 66,974                           |       |
| Total assets                                                                                                                     |       | $                            | 271,927    |                             | $          | 287,736 |   |
| ** **                                                                                                                       | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                    | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| Current  liabilities:                                                                                                            |       |                         |       |                             |       |
| Line of credit borrowings                                                                                                        |       | $                            | —     |                             | $          | — |   |
| Current portion of long-term debt                                                                                                |       | 656                          |       | 814                              |       |
| Accounts payable                                                                                                                 |       | 22,379                       |       | 19,593                           |       |
| Accrued expenses and other current liabilities                                                                                   |       | 40,683                       |       | 44,453                           |       |
| Total current liabilities                                                                                                        |       | 63,718                       |       | 64,860                           |       |
| Long-term  debt                                                                                                                  |       | 92,626                       |       | 117,535                          |       |
| Deferred  rent and other non-current liabilities                                                                                 |       | 23,680                       |       | 24,641                           |       |
| Total liabilities                                                                                                                |       | 180,024                      |       | 207,036                          |       |
|                                                                                                                             |       |                         |       |                             |       |
| Commitments  and contingencies (Note 9)                                                                                          |       |                         |       |                             |       |
|                                                                                                                             |       |                         |       |                             |       |
| 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, 5,938,689  and 5,624,374 shares issued and outstanding, respectively |       | 59                           |       | 56                               |       |
| Additional paid-in capital                                                                                                       |       | 79,862                       |       | 71,431                           |       |
| Retained earnings                                                                                                                |       | 13,167                       |       | 9,213                            |       |
| Accumulated other comprehensive loss                                                                                             |       | (1,185                       | )          | —                           |       |
| Total stockholders’ equity                                                                                                  |       | 91,903                       |       | 80,700                           |       |
| Total  liabilities and stockholders’ equity                                                                                 |       | $                            | 271,927    |                             | $          | 287,736 |   |

 

The accompanying notes are an integral part ofthese Consolidated Financial Statements.

3

----

**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

(in thousands, except per share amounts)

(unaudited)
| ** **                                   | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                         | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net sales                                    |       | $                                                | 143,857    |                                           | $          | 144,643 |   | $ | 292,341 |   | $ | 296,036 |   |
| Cost of goods sold                           |       | 67,797                                           |       | 68,620                                         |       | 139,231 |   | 143,830 |   |
| Gross profit                                 |       | 76,060                                           |       | 76,023                                         |       | 153,110 |   | 152,206 |   |
| Selling, general and administrative expenses |       | 69,065                                           |       | 71,414                                         |       | 138,613 |   | 143,102 |   |
| Operating income                             |       | 6,995                                            |       | 4,609                                          |       | 14,497 |   | 9,104 |   |
| Interest expense, net                        |       | 2,790                                            |       | 3,785                                          |       | 5,922 |   | 7,579 |   |
| Loss on extinguishment of debt               |       | —                                           |       | —                                         |       | 2,093 |   | — |   |
| Income before income taxes                   |       | 4,205                                            |       | 824                                            |       | 6,482 |   | 1,525 |   |
| Income tax provision                         |       | 1,640                                            |       | 322                                            |       | 2,528 |   | 595 |   |
| Net income                                   |       | $                                                | 2,565      |                                           | $          | 502 |   | $ | 3,954 |   | $ | 930 |   |
|                                         |       |                                             |       |                                           |       |   |   |   |   |
| Net income per share—Basic              |       | $                                                | 0.44       |                                           | $          | 0.09 |   | $ | 0.69 |   | $ | 0.18 |   |
| Average shares outstanding—Basic        |       | 5,824                                            |       | 5,291                                          |       | 5,765 |   | 5,280 |   |
| Net income per share—Diluted            |       | $                                                | 0.41       |                                           | $          | 0.09 |   | $ | 0.64 |   | $ | 0.17 |   |
| Average  shares outstanding—Diluted     |       | 6,227                                            |       | 5,501                                          |       | 6,183 |   | 5,402 |   |

 

Theaccompanying notes are an integral part of these Consolidated FinancialStatements.

4

----

**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYAND COMPREHENSIVE INCOME**

**(inthousands)**

**(unaudited)**
| ** **                                                   | ** ** | **Common Stock** | ** ** | ** ** | ** ** | ** **     | ** ** | **Accumulated** | ** ** | ** **        | ** ** | **Comprehensive Income** | ** ** |
|--------------------------------------------------------------|------------|-----------------------|------------|------------|------------|----------------|------------|-----------------|------------|-------------------|------------|-------------------------------|------------|
| ** **                                                   | ** ** | **Number**            | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **      | ** ** | **Other**         | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **of**                | ** ** | ** ** | ** ** | **Paid-in**    | ** ** | **Retained**    | ** ** | **Comprehensive** | ** ** | ** **                    | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **Shares**            | ** ** | **Amount** | ** ** | **Capital**    | ** ** | **Earnings**    | ** ** | **Loss**          | ** ** | **Total**                     | ** ** | **Quarter** | ** ** | **Year to Date** | ** ** |
| Balance as of  September 30, 2006                       |       | 5,624                 |       | $          | 56         |           | $          | 71,431          |       | $                 | 9,213      |                          | $          | — |   | $ | 80,700 |   |   |   |   |   |
| Net income                                                   |       |                  |       |       |       |           |       | 3,954           |       | —            |       | 3,954                         |       | $ | 2,565 |   | $ | 3,954 |   |
| Initial prior service cost for retirement plans, net  of tax |       | —                |       | —     |       | —         |       | —          |       | (1,202            | )          | (1,202                        | )          |   |   |   |   |
| Amortization of prior service cost, net of tax               |       | —                |       | —     |       | —         |       | —          |       | 17                |       | 17                            |       | 17 |   | 17 |   |
| Comprehensive income                                         |       |                  |       |       |       |           |       |            |       |              |       |                          |       | $ | 2,582 |   | $ | 3,971 |   |
| Stock-based compensation                                     |       | 107                   |       | 1          |       | 988            |       | —          |       | —            |       | 989                           |       |   |   |   |   |
| Exercise of stock options                                    |       | 208                   |       | 2          |       | 3,559          |       | —          |       | —            |       | 3,561                         |       |   |   |   |   |
| Tax benefit from stock option exercises                      |       | —                |       | —     |       | 2,462          |       | —          |       | —            |       | 2,462                         |       |   |   |   |   |
| Reclassification of equity award from liabilities            |       | —                |       | —     |       | 1,422          |       | —          |       | —            |       | 1,422                         |       |   |   |   |   |
| Balance as of March 31,  2007                           |       | 5,939                 |       | $          | 59         |           | $          | 79,862          |       | $                 | 13,167     |                          | $          | (1,185 | ) | $ | 91,903 |   |   |   |   |   |
|                                                         |       |                  |       |       |       |           |       |            |       |              |       |                          |       |   |   |   |   |
| Balance as of  September 30, 2005                       |       | 5,269                 |       | $          | 53         |           | $          | 63,164          |       | $                 | 111        |                          | $          | — |   | $ | 63,328 |   |   |   |   |   |
| Net income                                                   |       | —                |       | —     |       | —         |       | 930             |       | —            |       | 930                           |       | $ | 502 |   | $ | 930 |   |
| Comprehensive income                                         |       |                  |       |       |       |           |       |            |       |              |       |                          |       | $ | 502 |   | $ | 930 |   |
| Stock-based compensation                                     |       | —                |       | —     |       | 533            |       | —          |       | —            |       | 533                           |       |   |   |   |   |
| Exercise of stock options                                    |       | 47                    |       | —     |       | 430            |       | —          |       | —            |       | 430                           |       |   |   |   |   |
| Tax benefit from stock option exercises                      |       | —                |       | —     |       | 225            |       | —          |       | —            |       | 225                           |       |   |   |   |   |
| Balance as of March 31,  2006                                |       | 5,316                 |       | $          | 53         |           | $          | 64,352          |       | $                 | 1,041      |                          | $          | — |   | $ | 65,446 |   |   |   |   |   |

 

Theaccompanying notes are an integral part of these Consolidated FinancialStatements.

5

----

**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

(in thousands)

(unaudited)
| ** **                                                                         | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| **Cash Flows from Operating Activities**                                           |       |                                           |       |   |   |
| Net income                                                                         |       | $                                              | 3,954      |   | $ | 930 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                                           |       |   |   |
| Depreciation and amortization                                                      |       | 7,812                                          |       | 7,937 |   |
| Stock-based compensation  expense                                                  |       | 989                                            |       | 811 |   |
| Loss on impairment of  long-lived assets                                           |       | 390                                            |       | 1,851 |   |
| Gain on disposal of assets                                                         |       | (163                                           | )          | (197 | ) |
| Loss on extinguishment of debt                                                     |       | 2,093                                          |       | — |   |
| Accretion of discount on senior  notes                                             |       | 82                                             |       | 91 |   |
| Deferred income tax benefit                                                        |       | (432                                           | )          | (302 | ) |
| Amortization of deferred  financing costs                                          |       | 297                                            |       | 314 |   |
| Changes in assets and liabilities:                                                 |       |                                           |       |   |   |
| Decrease (increase) in —                                                      |       |                                           |       |   |   |
| Trade receivables                                                                  |       | (2,420                                         | )          | (3,064 | ) |
| Inventories                                                                        |       | (4,176                                         | )          | 9,108 |   |
| Prepaid expenses and other  assets                                                 |       | 4,263                                          |       | 474 |   |
| Increase (decrease) in —                                                      |       |                                           |       |   |   |
| Accounts payable, accrued  expenses and other current liabilities                  |       | (546                                           | )          | 4,732 |   |
| Deferred rent and other  non-current liabilities                                   |       | (1,671                                         | )          | 311 |   |
| Net cash provided by operating  activities                                         |       | 10,472                                         |       | 22,996 |   |
|                                                                               |       |                                           |       |   |   |
| **Cash Flows from Investing Activities**                                           |       |                                           |       |   |   |
| Purchase of short-term investments                                                 |       | (19,550                                        | )          | (25,525 | ) |
| Proceeds from sale of short-term investments                                       |       | 28,975                                         |       | 22,975 |   |
| Capital expenditures                                                               |       | (9,116                                         | )          | (8,046 | ) |
| Proceeds from sale of property, plant and equipment                                |       | 85                                             |       | — |   |
| Proceeds from sale of assets held for sale                                         |       | —                                         |       | 225 |   |
| Purchase of intangible assets                                                      |       | (9                                             | )          | (11 | ) |
| Net cash provided by (used in)  investing activities                               |       | 385                                            |       | (10,382 | ) |
|                                                                               |       |                                           |       |   |   |
| **Cash Flows from Financing Activities**                                           |       |                                           |       |   |   |
| (Decrease) increase in cash overdraft                                              |       | (885                                           | )          | 540 |   |
| Repayment of long-term debt                                                        |       | (25,330                                        | )          | (313 | ) |
| Premium on repurchase of long-term debt                                            |       | (1,406                                         | )          | — |   |
| Deferred financing costs                                                           |       | (1,019                                         | )          | — |   |
| Proceeds from exercise of stock options                                            |       | 3,561                                          |       | 430 |   |
| Excess tax benefit from exercise of stock options                                  |       | 2,462                                          |       | 242 |   |
| Net cash (used in) provided by  financing activities                               |       | (22,617                                        | )          | 899 |   |
| **Net (Decrease) Increase in Cash and Cash Equivalents**                           |       | (11,760                                        | )          | 13,513 |   |
| **Cash and Cash Equivalents, Beginning of Period**                                 |       | 18,904                                         |       | 3,037 |   |
| **Cash and Cash Equivalents, End of Period**                                       |       | $                                              | 7,144      |   | $ | 16,550 |   |
|                                                                               |       |                                           |       |   |   |
| Supplemental Disclosures of Cash Flow Information:                                 |       |                                           |       |   |   |
| Cash paid for interest                                                             |       | $                                              | 6,275      |   | $ | 7,332 |   |
| Cash (received) paid for income taxes                                              |       | $                                              | (1,972     | ) | $ | 1,071 |   |

 

The accompanying notes are an integral part ofthese Consolidated Financial Statements.

6

----

**MOTHERS WORK, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**March 31, 2007**

(unaudited)

**1.****              BASIS OF FINANCIAL STATEMENT PRESENTATION**

The accompanying unaudited consolidated financial statements 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.  Reference is made to the Annual Report onForm 10-K as of and for the year ended September 30, 2006 for MothersWork, Inc. and subsidiaries (the “Company” or “Mothers Work”) as filedwith the Securities and Exchange Commission (“SEC”), for additional disclosuresincluding a summary of the Company’s accounting policies.

Inthe opinion of management, the consolidated financial statements contain alladjustments, consisting of normal recurring adjustments, necessary to presentfairly the consolidated financial position, results of operations and cashflows of the Company for the periods presented. Since the Company’s operations are seasonal, the interim operatingresults of the Company may not be indicative of operating results for the fullyear.

The Company operates on a fiscal year ending September30 of each year.  All references tofiscal years of the Company refer to fiscal years ended on September 30 inthose years.  For example, the Company’s “fiscal2007” will end on September 30, 2007.  Certainreclassifications have been made to the prior year consolidated financialstatements to conform to the current year presentation.

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

Basicearnings per share (“Basic EPS”) is computed by dividing net income by theweighted average number of common shares outstanding, excluding restrictedstock awards for which the restrictions have not lapsed.  Diluted earningsper share (“Diluted EPS”) is computed by dividing net income by the weightedaverage number of common shares outstanding, after giving effect to thepotential dilution, if applicable, from the assumed lapse of restrictions onrestricted stock awards and from the exercise of securities, such as stockoptions and warrants, into shares of common stock as if those securities wereexercised.

The followingtables summarize the Basic EPS and Diluted EPS calculations (in thousands,except per share amounts):
| ** **                                                                            | ** ** | **Three Months Ended  March 31, 2007** | ** ** | **Three Months Ended  March 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Net  Income**                                            | ** ** | **Shares**                                                 | ** ** | **EPS** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **EPS** | ** ** |
| Basic EPS                                                                             |       | $                                                          | 2,565      |                                                       | 5,824      |   | $ | 0.44 |   | $ | 502 |   | 5,291 |   | $ | 0.09 |   |
| Incremental shares from the assumed lapse of restrictions on restricted  stock awards |       | —                                                     |       | 101                                                        |       | (0.01 | ) | — |   | — |   | — |   |
| Incremental shares from the assumed exercise of outstanding stock  options            |       | —                                                     |       | 302                                                        |       | (0.02 | ) | — |   | 210 |   | — |   |
|                                                                                  |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Diluted  EPS                                                                          |       | $                                                          | 2,565      |                                                       | 6,227      |   | $ | 0.41 |   | $ | 502 |   | 5,501 |   | $ | 0.09 |   |

 

 
| ** **                                                                            | ** ** | **Six Months Ended  March 31, 2007** | ** ** | **Six Months Ended  March 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Net  Income**                                          | ** ** | **Shares**                                               | ** ** | **EPS** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **EPS** | ** ** |
| Basic EPS                                                                             |       | $                                                        | 3,954      |                                                     | 5,765      |   | $ | 0.69 |   | $ | 930 |   | 5,280 |   | $ | 0.18 |   |
| Incremental shares from the assumed lapse of restrictions on restricted  stock awards |       | —                                                   |       | 67                                                       |       | (0.01 | ) | — |   | — |   | — |   |
| Incremental shares from the assumed exercise of outstanding stock  options            |       | —                                                   |       | 351                                                      |       | (0.04 | ) | — |   | 122 |   | (0.01 | ) |
|                                                                                  |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Diluted  EPS                                                                          |       | $                                                        | 3,954      |                                                     | 6,183      |   | $ | 0.64 |   | $ | 930 |   | 5,402 |   | $ | 0.17 |   |

 

For the threemonths ended March 31, 2007 and 2006, options and warrants to purchase 43,000and 450,760 shares, respectively, were excluded from the calculation of DilutedEPS as their effect would have been antidilutive.  For the six months ended March 31, 2007 and2006, options and warrants to purchase 25,500 and 758,615 shares, respectively,were excluded from the calculation of Diluted EPS as their effect would havebeen antidilutive.  These options and warrants could potentiallydilute EPS in the future.

7

----

 

 

**3.**                 INVENTORIES

Inventories werecomprised of the following (in thousands):
|                  | ** ** | **March 31, 2007** | ** ** | **September 30, 2006** | ** ** |
|------------------|------------|------------------------------|------------|----------------------------------|------------|
| Finished goods   |       | $                            | 91,435     |                             | $          | 86,937 |   |
| Work-in-progress |       | 2,866                        |       | 2,736                            |       |
| Raw materials    |       | 4,134                        |       | 4,586                            |       |
|             |       | $                            | 98,435     |                             | $          | 94,259 |   |

 

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

Accrued expensesand other current liabilities were comprised of the following (in thousands):
|                                                             | ** ** | **March 31, 2007** | ** ** | **September 30, 2006** | ** ** |
|-------------------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| Salaries, wages and employee benefits                       |       | $                            | 11,353     |                             | $          | 14,657 |   |
| Income taxes payable                                        |       | 1,273                        |       | 1,565                            |       |
| Interest                                                    |       | 1,850                        |       | 2,273                            |       |
| Deferred rent                                               |       | 4,079                        |       | 4,192                            |       |
| Sales taxes                                                 |       | 3,617                        |       | 3,170                            |       |
| Insurance                                                   |       | 2,045                        |       | 1,892                            |       |
| Audit and legal                                             |       | 3,139                        |       | 4,137                            |       |
| Remaining payout for redemption of Series A Preferred Stock |       | 679                          |       | 679                              |       |
| Accrued store construction costs                            |       | 1,252                        |       | 681                              |       |
| Gift certificates and store credits                         |       | 4,720                        |       | 3,895                            |       |
| Other                                                       |       | 6,676                        |       | 7,312                            |       |
|                                                        |       | $                            | 40,683     |                             | $          | 44,453 |   |

 

**5.****                 LONG-TERM DEBT AND LINE OF CREDIT**

InNovember 2006, the Company’s Board of Directors authorized the repurchaseof $25,000,000 principal amount of the Company’s 111¤4% senior notes (the “Senior Notes”).  On December 8, 2006, the Companycompleted the repurchase of the authorized amount at 105.625% of the$25,000,000 principal amount, plus accrued and unpaid interest.  In connection with the repurchase, theCompany recorded a pre-tax charge totaling $2,093,000, representing the premiumpaid plus the write-off of unamortized debt issuance discount and deferredfinancing costs.

On March 13, 2007,the Company entered into a Term Loan and Security Agreement (the “Term LoanAgreement”) for a $90,000,000 senior secured Term Loan B due March 13, 2013(the “Term Loan”), the proceeds of which were received on April 18, 2007 andwere used to redeem the remaining $90,000,000 principal amount of the SeniorNotes (see Note 12).  The interest rateon the Term Loan is equal to, at the Company’s election, either (i) the primerate plus 1.00%, or (ii) the LIBOR rate plus the applicable margin.  The applicable margin is initially fixed at2.50% through and including the fiscal quarter ending September 30, 2007.  Thereafter, the applicable margin for LIBORborrowings is either 2.25% or 2.50%, depending on the Company’s ConsolidatedLeverage Ratio (as defined).  In order tomitigate the Company’s floating rate interest risk on the variable rate TermLoan, it entered into an interest rate swap agreement with the Agent bank forthe Term Loan that commenced on April 18, 2007, the date the $90,000,000 TermLoan proceeds were received, and expires on April 18, 2012.  The interest rate swap agreement enables theCompany to effectively convert an amount of the Term Loan equal to the notionalamount of the interest rate swap from a floating interest rate of LIBOR plus2.50% (subject to reduction to LIBOR plus 2.25% if the Company achieves aspecified leverage ratio), to a fixed interest rate of 7.50% (subject toreduction to 7.25% if the Company achieves a specified leverage ratio).  The notional amount of the interest rate swapis $75,000,000 at inception of the swap agreement and decreases over time to anotional amount of $5,000,000 at the expiration date.  Commencing with the third quarter of fiscal2007, the Company is required to make minimum repayments of the principalamount of the Term Loan in quarterly installments of $225,000 each.  Additionally, the Term Loan can be prepaid atthe Company’s option, in part or in whole, at any time without any prepaymentpremium or penalty.  The Term LoanAgreement imposes certain restrictions on the Company’s ability to, among otherthings, incur additional indebtedness, pay dividends, repurchase stock, andenter into other various types of transactions. The Term Loan Agreement also contains quarterly financial covenants thatrequire the Company to maintain a specified maximum permitted ConsolidatedLeverage Ratio and a specified minimum permitted Consolidated Interest CoverageRatio (as defined).  As of March 31,2007, the Company was in compliance with the financial covenants of its TermLoan Agreement.

In connection withthe Term Loan transaction, the Company amended its existing $60,000,000revolving credit facility (the “Credit Facility”) in order to permit the newTerm Loan financing.  This amendment ofthe Credit Facility also extended its maturity from October 15, 2009 to March13, 2012, increased its size to $65,000,000, and reduced the LIBOR-basedinterest rate option under 

8

----

the facility by0.25%.  There are no financial covenantrequirements under the Credit Facility provided that Excess Availability (asdefined) does not fall below 10% of the Borrowing Base (as defined).  If Excess Availability were to fall below 10%of the Borrowing Base, the Company would be required to meet a specifiedminimum Fixed Charge Coverage Ratio (as defined).  During the first six months of fiscal 2007and the first six months of fiscal 2006, the Company exceeded minimumrequirements for Excess Availability.

**6.****              RETIREMENT PLANS**

On March 2, 2007, the Company entered into Supplemental ExecutiveRetirement Agreements with its Chairman of the Board and Chief ExecutiveOfficer and its President and Chief Operating Officer (the “SERP Agreements”).  Thepurpose of the SERP Agreements is to provide the executives with supplementalpension benefits following their cessation of employment.

The amount of the benefit payable under each SERP Agreement is theactuarial present value of a single life annuity equal to 60% of the executive’s“deemed final pay,” commencing upon cessation of employment.  For this purpose, “deemed final pay” meansthe executive’s current base salary, increased by 3% for each new fiscal yearthat begins before the executive’s cessation of employment.  This benefit vested 331/3% onMarch 2, 2007.  Starting on September 30,2007 and on each September 30 thereafter until fully vested, the benefit willvest either (i) 15%, if during that entire fiscal year the executive providedcontinuous full-time service to the Company, or (ii) 7.5%, if during thatentire fiscal year the executive provided at least continuous 50% part-timeservice to the Company.  Notwithstandingthe foregoing, the benefit is subject to full acceleration if, following achange in control, the executive’s employment ceases due to a terminationwithout cause or a resignation with good reason.  In connection with the initiation of the SERPAgreements, the Company adopted the provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans,” and recorded after-tax prior service cost of$1,202,000 (net of income tax benefit of $769,000) as Accumulated OtherComprehensive Loss.

The components of net periodic pension cost on a pre-tax basis were asfollows (in thousands):
|                                    | ** ** | **Three Months Ended,  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------------------------------|------------|---------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                         | ** ** | **2007**                                          | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                       |       | $                                                 | 131        |                                           | $          | — |   | $ | 131 |   | $ | — |   |
| Interest cost                      |       | 10                                                |       | —                                         |       | 10 |   | — |   |
| Amortization of prior service cost |       | 29                                                |       | —                                         |       | 29 |   | — |   |
| Total  net periodic benefit cost   |       | $                                                 | 170        |                                           | $          | — |   | $ | 170 |   | $ | — |   |

 

The SERP Agreements also provide that the Company will establish agrantor trust, the assets of which will be used to pay benefits under the SERPAgreements (or to satisfy the claims of the Company’s general creditors in theevent of the Company’s bankruptcy or insolvency).  The grantor trust will be fundedperiodically, on an actuarial basis, such that the total assets of the trustfrom time to time will reasonably approximate the Company’s then currentobligation under the SERP Agreements (provided that, upon a change in control,the Company has agreed to fully fund the grantor trust, regardless of theextent to which the SERP benefits are then vested).   On April 30, 2007, the Company made aninitial contribution to the grantor trust of $2,662,000 and no furthercontributions are expected to be made during fiscal 2007.

**7.****              NEWACCOUNTING PRONOUNCEMENTS**

FASBInterpretation No. 48

InJune 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes.”  FASB Interpretation No. 48 providesguidance for the recognition and measurement of uncertain tax positions in anenterprise’s financial statements. Recognition involves a determination of whether it is more likely thannot that a tax position will be sustained upon examination with the presumptionthat the tax position will be examined by the appropriate taxing authority thatwould have full knowledge of all relevant information.  This interpretation is effective for fiscalyears beginning after December 15, 2006. Early adoption is permitted if the enterprise has not issued financialstatements, including interim financial statements, in the period ofadoption.  The impact from adoption ofFASB Interpretation No. 48, if any, on the Company’s consolidatedfinancial position or results of operations has not yet been determined.  The Company plans to adopt FASBInterpretation No. 48 effective as of October 1, 2007.

*EITFIssue 06-3*

InJune 2006, the Emerging Issues Task Force (“EITF”) issued EITF Issue 06-3, “HowTaxes Collected from Customers and Remitted to Governmental Authorities ShouldBe Presented in the Income Statement (That Is, Gross versus Net Presentation).”  EITF Issue 06-3 provides guidance related tothe presentation in financial statements of any tax assessed

9

----

by a governmentalauthority that is directly imposed on a revenue-producing transaction between aseller and a customer, including, but not limited to, sales, use, value added,and some excise taxes.  The EITFconcluded that the presentation of taxes within the scope of EITF Issue 06-3 oneither a gross (included in revenues and costs) or a net (excluded fromrevenues) basis is an accounting policy decision that should disclosed.  In addition, the aggregate amount of any suchtaxes that are reported on a gross basis should be disclosed in interim andannual financial statements.  Theguidance in EITF Issue 06-3 is effective for interim and annual reportingperiods beginning after December 15, 2006. The Company presently reports taxes within the scope of EITF Issue 06-3on a net basis and adoption did not have any impact on the consolidatedfinancial statements.

SAB No. 108

InSeptember 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements.”  SABNo. 108 states that SEC registrants should use both a balance sheet approachand an income statement approach when quantifying and evaluating themateriality of a misstatement, contains guidance on correcting errors under thedual approach and provides transition guidance for correcting errors existingin prior years.   SAB No. 108 is effective for annual financialstatements covering the first fiscal year ending after November 15, 2006.  The Company does not expect the adoption ofSAB No. 108 to have a material impact on the Company’s consolidated financialstatements.

SFAS No. 157

InSeptember 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements.”  SFAS No. 157 definesfair value, establishes a framework for measuring fair value in U.S. generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements.  SFAS No. 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years.  The impact from adoption of SFAS No. 157, ifany, on the Company’s consolidated financial position or results of operationshas not yet been determined.

SFAS No. 158

InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans.”  SFAS No. 158 requires an employer torecognize the funded status of a benefit plan, measured as the differencebetween plan assets at fair value and the projected benefit obligation, in itsstatement of financial position.  SFASNo. 158 also requires an employer to measure defined benefit plan assets andobligations as of the date of the employer’s fiscal year-end statement offinancial position.  This statement iseffective as of the end of the fiscal year ending after December 15, 2006,except for the requirement to measure plan assets and obligations as of thedate of the employer’s fiscal year-end statement of financial position, whichis effective for fiscal years ending after December 15, 2008.  In March 2007, the Company entered into SERPAgreements with two executives and adopted the provisions of SFAS No. 158.

SFAS No. 159

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities.” SFAS No. 159 provides companies with an option to report selectedfinancial assets and liabilities at fair value and requires entities to displaythe fair value of those assets and liabilities for which the company has chosento use fair value on the face of the balance sheet.  SFAS No. 159 is effective for financialstatements issued for fiscal years beginning after November 15, 2007.  The impact from adoption of SFAS No. 159, ifany, on the Company’s consolidated financial position or results of operationshas not yet been determined.

**8.****              GUARANTOR SUBSIDIARIES**

Pursuant to the terms ofthe indenture relating to the Senior Notes, each of the domestic subsidiariesof Mothers Work, Inc. (the “Guarantor Subsidiaries”) has jointly andseverally provided an unconditional guarantee of the obligations of MothersWork with respect to the Senior Notes.  Thereare no restrictions on any of the assets of the Guarantor Subsidiaries whichwould limit their ability to transfer funds to Mothers Work in the form ofloans, advances or cash dividends, except as provided by applicable law.  None of the Company’s foreign subsidiaries(the “Non-Guarantor Subsidiaries”) have guaranteed the Senior Notes.  The condensed consolidating financialinformation for the Company, the Guarantor Subsidiaries, and the Non-GuarantorSubsidiaries as of March 31, 2007 and September 30, 2006 and for the threemonths and six months ended March 31, 2007 and 2006 as presented below hasbeen prepared from the books and records maintained by the GuarantorSubsidiaries and the Company.  Thecondensed consolidating financial information may not necessarily be indicativeof the results of operations or financial position had the GuarantorSubsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary recordsare eliminated in consolidation.  As aresult of this activity, an amount due to/due from parent will exist at anytime.

10

----

**Mothers Work, Inc.**

**Condensed Consolidating Balance Sheet**

**March 31, 2007**

(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                        |       | $                                        | 5,619      |                        | $          | 103                                                    |       | $                               | 1,422      |                                | $          | — |   | $ | 7,144 |   |
| Trade receivables, net                           |       | 14,051                                   |       | —                      |       | —                                                 |       | —                          |       | 14,051                              |       |
| Inventories                                      |       | 95,215                                   |       | —                      |       | 3,220                                                  |       | —                          |       | 98,435                              |       |
| Deferred income taxes                            |       | 6,018                                    |       | —                      |       | —                                                 |       | —                          |       | 6,018                               |       |
| Prepaid expenses and other  current assets       |       | 4,061                                    |       | 2                           |       | 81                                                     |       | —                          |       | 4,144                               |       |
| Total current assets                             |       | 124,964                                  |       | 105                         |       | 4,723                                                  |       | —                          |       | 129,792                             |       |
| Property, plant and equipment, net               |       | 70,949                                   |       | —                      |       | 2,213                                                  |       | —                          |       | 73,162                              |       |
| Assets held for sale                             |       | —                                   |       | —                      |       | 700                                                    |       | —                          |       | 700                                 |       |
| Other assets                                     |       | 68,088                                   |       | 65                          |       | 120                                                    |       | —                          |       | 68,273                              |       |
| Investments in and advances to (from) affiliates |       | 1,615                                    |       | 291,985                     |       | (3,698                                                 | )          | (289,902                        | )          | —                              |       |
| Total assets                                     |       | $                                        | 265,616    |                        | $          | 292,155                                                |       | $                               | 4,058      |                                | $          | (289,902 | ) | $ | 271,927 |   |
|                                             |       |                                     |       |                        |       |                                                   |       |                            |       |                                |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**   | ** ** | ** **                               | ** ** | ** **                  | ** ** | ** **                                             | ** ** | ** **                      | ** ** | ** **                          | ** ** |
| Current liabilities:                             |       |                                     |       |                        |       |                                                   |       |                            |       |                                |       |
| Line of credit borrowings                        |       | $                                        | —     |                        | $          | —                                                 |       | $                               | —     |                                | $          | — |   | $ | — |   |
| Current portion of long-term  debt               |       | 656                                      |       | —                      |       | —                                                 |       | —                          |       | 656                                 |       |
| Accounts payable                                 |       | 22,379                                   |       | —                      |       | —                                                 |       | —                          |       | 22,379                              |       |
| Accrued expenses and other  current liabilities  |       | 35,513                                   |       | 4,744                       |       | 426                                                    |       | —                          |       | 40,683                              |       |
| Total current liabilities                        |       | 58,548                                   |       | 4,744                       |       | 426                                                    |       | —                          |       | 63,718                              |       |
| Long-term debt                                   |       | 92,626                                   |       | —                      |       | —                                                 |       | —                          |       | 92,626                              |       |
| Deferred rent and other non-current liabilities  |       | 22,539                                   |       | —                      |       | 1,141                                                  |       | —                          |       | 23,680                              |       |
| Total liabilities                                |       | 173,713                                  |       | 4,744                       |       | 1,567                                                  |       | —                          |       | 180,024                             |       |
|                                             |       |                                     |       |                        |       |                                                   |       |                            |       |                                |       |
| Total stockholders’ equity                  |       | 91,903                                   |       | 287,411                     |       | 2,491                                                  |       | (289,902                        | )          | 91,903                              |       |
| Total liabilities and stockholders’ equity  |       | $                                        | 265,616    |                        | $          | 292,155                                                |       | $                               | 4,058      |                                | $          | (289,902 | ) | $ | 271,927 |   |

 

11

----

**Mothers Work, Inc.**

**Condensed Consolidating Balance Sheet**

**September 30, 2006**

(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                        |       | $                                        | 16,878     |                        | $          | 96                                                     |       | $                               | 1,930      |                                | $          | — |   | $ | 18,904 |   |
| Short-term investments                           |       | 9,425                                    |       | —                      |       | —                                                 |       | —                          |       | 9,425                               |       |
| Trade receivables, net                           |       | 11,631                                   |       | —                      |       | —                                                 |       | —                          |       | 11,631                              |       |
| Inventories                                      |       | 91,653                                   |       | —                      |       | 2,606                                                  |       | —                          |       | 94,259                              |       |
| Deferred income taxes                            |       | 6,018                                    |       | —                      |       | —                                                 |       | —                          |       | 6,018                               |       |
| Prepaid expenses and other  current assets       |       | 8,226                                    |       | —                      |       | 169                                                    |       | —                          |       | 8,395                               |       |
| Total current assets                             |       | 143,831                                  |       | 96                          |       | 4,705                                                  |       | —                          |       | 148,632                             |       |
| Property, plant and equipment, net               |       | 69,026                                   |       | —                      |       | 2,404                                                  |       | —                          |       | 71,430                              |       |
| Assets held for sale                             |       | —                                   |       | —                      |       | 700                                                    |       | —                          |       | 700                                 |       |
| Other assets                                     |       | 66,774                                   |       | 69                          |       | 131                                                    |       | —                          |       | 66,974                              |       |
| Investments in and advances to (from) affiliates |       | 1,839                                    |       | 274,649                     |       | (4,184                                                 | )          | (272,304                        | )          | —                              |       |
| Total assets                                     |       | $                                        | 281,470    |                        | $          | 274,814                                                |       | $                               | 3,756      |                                | $          | (272,304 | ) | $ | 287,736 |   |
|                                             |       |                                     |       |                        |       |                                                   |       |                            |       |                                |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**   | ** ** | ** **                               | ** ** | ** **                  | ** ** | ** **                                             | ** ** | ** **                      | ** ** | ** **                          | ** ** |
| Current liabilities:                             |       |                                     |       |                        |       |                                                   |       |                            |       |                                |       |
| Line of credit borrowings                        |       | $                                        | —     |                        | $          | —                                                 |       | $                               | —     |                                | $          | — |   | $ | — |   |
| Current portion of long-term  debt               |       | 814                                      |       | —                      |       | —                                                 |       | —                          |       | 814                                 |       |
| Accounts payable                                 |       | 19,593                                   |       | —                      |       | —                                                 |       | —                          |       | 19,593                              |       |
| Accrued expenses and other  current liabilities  |       | 39,281                                   |       | 4,756                       |       | 416                                                    |       | —                          |       | 44,453                              |       |
| Total current liabilities                        |       | 59,688                                   |       | 4,756                       |       | 416                                                    |       | —                          |       | 64,860                              |       |
| Long-term debt                                   |       | 117,535                                  |       | —                      |       | —                                                 |       | —                          |       | 117,535                             |       |
| Deferred rent and other non-current liabilities  |       | 23,547                                   |       | —                      |       | 1,094                                                  |       | —                          |       | 24,641                              |       |
| Total liabilities                                |       | 200,770                                  |       | 4,756                       |       | 1,510                                                  |       | —                          |       | 207,036                             |       |
|                                             |       |                                     |       |                        |       |                                                   |       |                            |       |                                |       |
| Total stockholders’ equity                  |       | 80,700                                   |       | 270,058                     |       | 2,246                                                  |       | (272,304                        | )          | 80,700                              |       |
| Total liabilities and stockholders’ equity  |       | $                                        | 281,470    |                        | $          | 274,814                                                |       | $                               | 3,756      |                                | $          | (272,304 | ) | $ | 287,736 |   |

 

12

----

**Mothers Work, Inc.**

**Consolidating Statement of Operations**

**For the Three Months Ended March 31, 2007 and 2006**

(in thousands)

(unaudited)
| ** **                                      | ** ** | **Mothers Work  (Parent Company)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries  (Foreign  Companies)** | ** ** | **Consolidating  Eliminations** | ** ** | **Mothers Work  Consolidated** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|
| **For the  Three Months Ended March 31, 2007**  |       |                                         |       |                        |       |                                                  |       |                            |       |                                |       |
| Net sales                                       |       | $                                            | 140,079    |                        | $          | 7,265                                                 |       | $                               | 3,778      |                                | $          | (7,265 | ) | $ | 143,857 |   |
| Cost of goods sold                              |       | 66,132                                       |       | —                      |       | 1,665                                                 |       | —                          |       | 67,797                              |       |
| Gross profit                                    |       | 73,947                                       |       | 7,265                       |       | 2,113                                                 |       | (7,265                          | )          | 76,060                              |       |
| Selling, general and administrative expenses    |       | 74,040                                       |       | 215                         |       | 2,075                                                 |       | (7,265                          | )          | 69,065                              |       |
| Operating income (loss)                         |       | (93                                          | )          | 7,050                       |       | 38                                                    |       | —                          |       | 6,995                               |       |
| Interest income (expense), net                  |       | (8,863                                       | )          | 6,073                       |       | —                                                |       | —                          |       | (2,790                              | )          |
| Equity in earnings of subsidiaries              |       | 13,161                                       |       | —                      |       | —                                                |       | (13,161                         | )          | —                              |       |
| Income before income taxes                      |       | 4,205                                        |       | 13,123                      |       | 38                                                    |       | (13,161                         | )          | 4,205                               |       |
| Income tax provision                            |       | 1,640                                        |       | 4,593                       |       | 14                                                    |       | (4,607                          | )          | 1,640                               |       |
| Net income                                      |       | $                                            | 2,565      |                        | $          | 8,530                                                 |       | $                               | 24         |                                | $          | (8,554 | ) | $ | 2,565 |   |
|                                            |       |                                         |       |                        |       |                                                  |       |                            |       |                                |       |
| **For the Three Months Ended  March  31, 2006** |       |                                         |       |                        |       |                                                  |       |                            |       |                                |       |
| Net sales                                       |       | $                                            | 140,943    |                        | $          | 7,377                                                 |       | $                               | 3,700      |                                | $          | (7,377 | ) | $ | 144,643 |   |
| Cost of goods sold                              |       | 66,635                                       |       | —                      |       | 1,985                                                 |       | —                          |       | 68,620                              |       |
| Gross profit                                    |       | 74,308                                       |       | 7,377                       |       | 1,715                                                 |       | (7,377                          | )          | 76,023                              |       |
| Selling, general and administrative expenses    |       | 77,198                                       |       | 71                          |       | 1,522                                                 |       | (7,377                          | )          | 71,414                              |       |
| Operating income                                |       | (2,890                                       | )          | 7,306                       |       | 193                                                   |       | —                          |       | 4,609                               |       |
| Interest income (expense), net                  |       | (8,692                                       | )          | 4,907                       |       | —                                                |       | —                          |       | (3,785                              | )          |
| Equity in earnings of subsidiaries              |       | 12,406                                       |       | —                      |       | —                                                |       | (12,406                         | )          | —                              |       |
| Income before income taxes                      |       | 824                                          |       | 12,213                      |       | 193                                                   |       | (12,406                         | )          | 824                                 |       |
| Income tax provision                            |       | 322                                          |       | 4,275                       |       | 75                                                    |       | (4,350                          | )          | 322                                 |       |
| Net  income                                     |       | $                                            | 502        |                        | $          | 7,938                                                 |       | $                               | 118        |                                | $          | (8,056 | ) | $ | 502 |   |

 

13

----

**Mothers Work, Inc.**

**Consolidating Statement of Operations**

**For the Six Months Ended March 31, 2007 and 2006**

(in thousands)

(unaudited)
| ** **                                    | ** ** | **Mothers Work  (Parent Company)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries  (Foreign  Companies)** | ** ** | **Consolidating  Eliminations** | ** ** | **Mothers Work  Consolidated** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|
| **For the  Six Months Ended March 31, 2007**  |       |                                         |       |                        |       |                                                  |       |                            |       |                                |       |
| Net sales                                     |       | $                                            | 284,296    |                        | $          | 14,964                                                |       | $                               | 8,045      |                                | $          | (14,964 | ) | $ | 292,341 |   |
| Cost of goods sold                            |       | 135,785                                      |       | —                      |       | 3,446                                                 |       | —                          |       | 139,231                             |       |
| Gross profit                                  |       | 148,511                                      |       | 14,964                      |       | 4,599                                                 |       | (14,964                         | )          | 153,110                             |       |
| Selling, general and administrative expenses  |       | 149,046                                      |       | 333                         |       | 4,198                                                 |       | (14,964                         | )          | 138,613                             |       |
| Operating income (loss)                       |       | (535                                         | )          | 14,631                      |       | 401                                                   |       | —                          |       | 14,497                              |       |
| Interest income (expense), net                |       | (17,988                                      | )          | 12,066                      |       | —                                                |       | —                          |       | (5,922                              | )          |
| Loss on extinguishment of debt                |       | (2,093                                       | )          | —                      |       | —                                                |       | —                          |       | (2,093                              | )          |
| Equity in earnings of subsidiaries            |       | 27,098                                       |       | —                      |       | —                                                |       | (27,098                         | )          | —                              |       |
| Income before income taxes                    |       | 6,482                                        |       | 26,697                      |       | 401                                                   |       | (27,098                         | )          | 6,482                               |       |
| Income tax provision                          |       | 2,528                                        |       | 9,344                       |       | 156                                                   |       | (9,500                          | )          | 2,528                               |       |
| Net income                                    |       | $                                            | 3,954      |                        | $          | 17,353                                                |       | $                               | 245        |                                | $          | (17,598 | ) | $ | 3,954 |   |
|                                          |       |                                         |       |                        |       |                                                  |       |                            |       |                                |       |
| **For the Six Months Ended  March  31, 2006** |       |                                         |       |                        |       |                                                  |       |                            |       |                                |       |
| Net sales                                     |       | $                                            | 288,478    |                        | $          | 15,270                                                |       | $                               | 7,558      |                                | $          | (15,270 | ) | $ | 296,036 |   |
| Cost of goods sold                            |       | 140,446                                      |       | —                      |       | 3,384                                                 |       | —                          |       | 143,830                             |       |
| Gross profit                                  |       | 148,032                                      |       | 15,270                      |       | 4,174                                                 |       | (15,270                         | )          | 152,206                             |       |
| Selling, general and administrative expenses  |       | 154,523                                      |       | 153                         |       | 3,696                                                 |       | (15,270                         | )          | 143,102                             |       |
| Operating income (loss)                       |       | (6,491                                       | )          | 15,117                      |       | 478                                                   |       | —                          |       | 9,104                               |       |
| Interest income (expense), net                |       | (17,036                                      | )          | 9,457                       |       | —                                                |       | —                          |       | (7,579                              | )          |
| Equity in earnings of subsidiaries            |       | 25,052                                       |       | —                      |       | —                                                |       | (25,052                         | )          | —                              |       |
| Income before income taxes                    |       | 1,525                                        |       | 24,574                      |       | 478                                                   |       | (25,052                         | )          | 1,525                               |       |
| Income tax provision                          |       | 595                                          |       | 8,601                       |       | 186                                                   |       | (8,787                          | )          | 595                                 |       |
| Net  income                                   |       | $                                            | 930        |                        | $          | 15,973                                                |       | $                               | 292        |                                | $          | (16,265 | ) | $ | 930 |   |

 

14

----

**Mothers Work, Inc.**

**Consolidating Cash Flow Statement**

**For the Six Months Ended March 31, 2007**

(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                                                                                   |       | $                                        | 3,954      |                        | $          | 17,353                                                |       | $                               | 245        |                                | $          | (17,598 | ) | $ | 3,954 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities: |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Depreciation and amortization                                                                 |       | 7,576                                    |       | 4                           |       | 232                                                   |       | —                          |       | 7,812                               |       |
| Stock-based compensation expense                                                              |       | 989                                      |       | —                      |       | —                                                |       | —                          |       | 989                                 |       |
| Loss on impairment of long-lived assets                                                       |       | 329                                      |       | —                      |       | 61                                                    |       | —                          |       | 390                                 |       |
| Gain on disposal of assets                                                                    |       | (163                                     | )          | —                      |       | —                                                |       | —                          |       | (163                                | )          |
| Accretion of discount on senior notes                                                         |       | 82                                       |       | —                      |       | —                                                |       | —                          |       | 82                                  |       |
| Loss on extinguishment of debt                                                                |       | 2,093                                    |       | —                      |       | —                                                |       | —                          |       | 2,093                               |       |
| Deferred income tax benefit                                                                   |       | (432                                     | )          | —                      |       | —                                                |       | —                          |       | (432                                | )          |
| Amortization of deferred financing costs                                                      |       | 297                                      |       | —                      |       | —                                                |       | —                          |       | 297                                 |       |
| Changes  in assets and liabilities:                                                           |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Decrease (increase) in—                                                                  |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Trade receivables                                                                             |       | (2,420                                   | )          | —                      |       | —                                                |       | —                          |       | (2,420                              | )          |
| Inventories                                                                                   |       | (3,562                                   | )          | —                      |       | (614                                                  | )          | —                          |       | (4,176                              | )          |
| Prepaid expenses and other assets                                                             |       | 4,177                                    |       | (2                          | )          | 88                                                    |       | —                          |       | 4,263                               |       |
| Investments in and advances to (from) affiliates                                              |       | 224                                      |       | (17,336                     | )          | (486                                                  | )          | 17,598                          |       | —                              |       |
| Increase (decrease) in—                                                                  |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Accounts payable, accrued expenses and other current liabilities                              |       | (539                                     | )          | (12                         | )          | 5                                                     |       | —                          |       | (546                                | )          |
| Deferred rent and other non-current liabilities                                               |       | (1,718                                   | )          | —                      |       | 47                                                    |       | —                          |       | (1,671                              | )          |
| Net cash provided by (used in) operating activities                                           |       | 10,887                                   |       | 7                           |       | (422                                                  | )          | —                          |       | 10,472                              |       |
| **Cash  Flows from Investing Activities**                                                     | ** ** | ** **                               | ** ** | ** **                  | ** ** | ** **                                            | ** ** | ** **                      | ** ** | ** **                          | ** ** |
| Purchase  of short-term investments                                                           |       | (19,550                                  | )          | —                      |       | —                                                |       | —                          |       | (19,550                             | )          |
| Proceeds  from sale of short-term  investments                                                |       | 28,975                                   |       | —                      |       | —                                                |       | —                          |       | 28,975                              |       |
| Capital  expenditures                                                                         |       | (9,030                                   | )          | —                      |       | (86                                                   | )          | —                          |       | (9,116                              | )          |
| Proceeds  from sale of property, plant and equipment                                          |       | 85                                       |       | —                      |       | —                                                |       | —                          |       | 85                                  |       |
| Purchase  of intangible assets                                                                |       | (9                                       | )          | —                      |       | —                                                |       | —                          |       | (9                                  | )          |
| Net cash provided by (used in) investing activities                                           |       | 471                                      |       | —                      |       | (86                                                   | )          | —                          |       | 385                                 |       |
| **Cash  Flows from Financing Activities**                                                     | ** ** | ** **                               | ** ** | ** **                  | ** ** | ** **                                            | ** ** | ** **                      | ** ** | ** **                          | ** ** |
| Decrease  in cash overdraft                                                                   |       | (885                                     | )          | —                      |       | —                                                |       | —                          |       | (885                                | )          |
| Repayment  of long-term debt                                                                  |       | (25,330                                  | )          | —                      |       | —                                                |       | —                          |       | (25,330                             | )          |
| Premium  on repurchase of long-term debt                                                      |       | (1,406                                   | )          | —                      |       | —                                                |       | —                          |       | (1,406                              | )          |
| Deferred  financing costs                                                                     |       | (1,019                                   | )          | —                      |       | —                                                |       | —                          |       | (1,019                              | )          |
| Proceeds  from exercise of stock options                                                      |       | 3,561                                    |       | —                      |       | —                                                |       | —                          |       | 3,561                               |       |
| Excess  tax benefit of stock option  exercises                                                |       | 2,462                                    |       | —                      |       | —                                                |       | —                          |       | 2,462                               |       |
| Net cash used in financing activities                                                         |       | (22,617                                  | )          | —                      |       | —                                                |       | —                          |       | (22,617                             | )          |
| **Net  (Decrease) Increase in Cash and Cash  Equivalents**                                    |       | (11,259                                  | )          | 7                           |       | (508                                                  | )          | —                          |       | (11,760                             | )          |
| **Cash and  Cash Equivalents, Beginning of Period**                                           |       | 16,878                                   |       | 96                          |       | 1,930                                                 |       | —                          |       | 18,904                              |       |
| **Cash and Cash Equivalents, End  of  Period**                                                |       | $                                        | 5,619      |                        | $          | 103                                                   |       | $                               | 1,422      |                                | $          | — |   | $ | 7,144 |   |

 

15

----

**Mothers Work, Inc.**

**Consolidating Cash Flow Statement**

**For the Six Months Ended March 31, 2006**

(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                                                                                   |       | $                                        | 930        |                        | $          | 15,973                                                |       | $                               | 292        |                                | $          | (16,265 | ) | $ | 930 |   |
| Adjustments to reconcile net income to net cash provided by (used in)  operating activities: |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Depreciation and amortization                                                                |       | 7,709                                    |       | —                      |       | 228                                                   |       | —                          |       | 7,937                               |       |
| Stock-based compensation  expense                                                            |       | 811                                      |       | —                      |       | —                                                |       | —                          |       | 811                                 |       |
| Loss on impairment of  long-lived assets                                                     |       | 1,851                                    |       | —                      |       | —                                                |       | —                          |       | 1,851                               |       |
| Gain on disposal of assets                                                                   |       | (197                                     | )          | —                      |       | —                                                |       | —                          |       | (197                                | )          |
| Accretion of discount on  senior notes                                                       |       | 91                                       |       | —                      |       | —                                                |       | —                          |       | 91                                  |       |
| Deferred income tax benefit                                                                  |       | (302                                     | )          | —                      |       | —                                                |       | —                          |       | (302                                | )          |
| Amortization of deferred  financing costs                                                    |       | 314                                      |       | —                      |       | —                                                |       | —                          |       | 314                                 |       |
| Changes in assets and liabilities:                                                           |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Decrease (increase) in—                                                                 |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Trade receivables                                                                            |       | (3,141                                   | )          | —                      |       | 77                                                    |       | —                          |       | (3,064                              | )          |
| Inventories                                                                                  |       | 9,416                                    |       | —                      |       | (308                                                  | )          | —                          |       | 9,108                               |       |
| Prepaid expenses and other  assets                                                           |       | 504                                      |       | 2                           |       | (32                                                   | )          | —                          |       | 474                                 |       |
| Investments in and advances to  (from) affiliates                                            |       | (2,374                                   | )          | (13,579                     | )          | (312                                                  | )          | 16,265                          |       | —                              |       |
| Increase (decrease) in—                                                                 |       |                                     |       |                        |       |                                                  |       |                            |       |                                |       |
| Accounts payable, accrued  expenses and other current liabilities                            |       | 7,046                                    |       | (2,423                      | )          | 109                                                   |       | —                          |       | 4,732                               |       |
| Deferred rent and other  non-current liabilities                                             |       | 279                                      |       | —                      |       | 32                                                    |       | —                          |       | 311                                 |       |
| Net cash provided by (used in)  operating activities                                         |       | 22,937                                   |       | (27                         | )          | 86                                                    |       | —                          |       | 22,996                              |       |
| **Cash Flows from Investing Activities**                                                     | ** ** | ** **                               | ** ** | ** **                  | ** ** | ** **                                            | ** ** | ** **                      | ** ** | ** **                          | ** ** |
| Purchase of short-term investments                                                           |       | (25,525                                  | )          | —                      |       | —                                                |       | —                          |       | (25,525                             | )          |
| Proceeds from sale of short-term  investments                                                |       | 22,975                                   |       | —                      |       | —                                                |       | —                          |       | 22,975                              |       |
| Capital expenditures                                                                         |       | (7,936                                   | )          | —                      |       | (110                                                  | )          | —                          |       | (8,046                              | )          |
| Proceeds from sale of assets held for sale                                                   |       | —                                   |       | —                      |       | 225                                                   |       | —                          |       | 225                                 |       |
| Purchase of intangible assets                                                                |       | (7                                       | )          | —                      |       | (4                                                    | )          | —                          |       | (11                                 | )          |
| Net cash (used in) provided by  investing activities                                         |       | (10,493                                  | )          | —                      |       | 111                                                   |       | —                          |       | (10,382                             | )          |
| **Cash Flows from Financing Activities**                                                     | ** ** | ** **                               | ** ** | ** **                  | ** ** | ** **                                            | ** ** | ** **                      | ** ** | ** **                          | ** ** |
| Increase in cash overdraft                                                                   |       | 540                                      |       | —                      |       | —                                                |       | —                          |       | 540                                 |       |
| Repayment of long-term debt                                                                  |       | (313                                     | )          | —                      |       | —                                                |       | —                          |       | (313                                | )          |
| Proceeds from exercise of stock options                                                      |       | 430                                      |       | —                      |       | —                                                |       | —                          |       | 430                                 |       |
| Excess tax benefit of stock option  exercises                                                |       | 242                                      |       | —                      |       | —                                                |       | —                          |       | 242                                 |       |
| Net cash provided by financing  activities                                                   |       | 899                                      |       | —                      |       | —                                                |       | —                          |       | 899                                 |       |
| **Net Increase (Decrease) in Cash and Cash Equivalents**                                     |       | 13,343                                   |       | (27                         | )          | 197                                                   |       | —                          |       | 13,513                              |       |
| **Cash and Cash Equivalents, Beginning of Period**                                           |       | 2,901                                    |       | 37                          |       | 99                                                    |       | —                          |       | 3,037                               |       |
| **Cash and  Cash Equivalents, End of  Period**                                               |       | $                                        | 16,244     |                        | $          | 10                                                    |       | $                               | 296        |                                | $          | — |   | $ | 16,550 |   |

 

16

----

**9.****                 COMMITMENTSAND CONTINGENCIES**

From time to time,the Company is named as a defendant in legal actions arising from normalbusiness activities. Litigation is inherently unpredictable and although theamount of any liability that could arise with respect to currently pendingactions cannot be accurately predicted, the Company does not believe that theresolution of any pending action will have a material adverse effect on itsfinancial position, results of operations or liquidity.

**10.**          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 the Company offers a wide range ofproducts for sale, the substantial portion of its products are initiallydistributed through the same distribution facilities, many of the Company’sproducts are manufactured at common contract manufacturer productionfacilities, the Company’s products are marketed through a common marketingdepartment, and these products are sold to a similar customer base, consistingof expectant mothers.

***Geographic Information***.  Information concerning theCompany’s operations by geographic area was as follows (in thousands):
|                                          | ** ** | **Three Months Ended,  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                          | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Net  Sales to Unaffiliated Customers** |       |                                              |       |                                           |       |   |   |   |   |
| United States                            |       | $                                                 | 140,079    |                                           | $          | 140,943 |   | $ | 284,296 |   | $ | 288,478 |   |
| Canada                                   |       | $                                                 | 3,778      |                                           | $          | 3,700 |   | $ | 8,045 |   | $ | 7,558 |   |

 
|                        | ** ** | **March 31  2007** | ** ** | **September 30,  2006** | ** ** |
|------------------------|------------|-------------------------|------------|------------------------------|------------|
| **Long-Lived  Assets** |       |                    |       |                         |       |
| United States          |       | $                       | 71,482     |                         | $          | 69,621 |   |
| Canada                 |       | $                       | 2,333      |                         | $          | 2,535 |   |
| Costa Rica             |       | $                       | 700        |                         | $          | 700 |   |

 

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

**11.**          INTERESTEXPENSE, NET

Interest expense, net wascomprised of the following (in thousands):
|                        | ** ** | **Three Months Ended,  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------------------|------------|---------------------------------------------------|------------|------------------------------------------------|------------|
| ** **             | ** ** | **2007**                                          | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Interest expense       |       | $                                                 | 2,847      |                                           | $          | 3,902 |   | $ | 6,217 |   | $ | 7,739 |   |
| Interest income        |       | (57                                               | )          | (117                                           | )          | (295 | ) | (160 | ) |
| Interest  expense, net |       | $                                                 | 2,790      |                                           | $          | 3,785 |   | $ | 5,922 |   | $ | 7,579 |   |

 

**12.****          SUBSEQUENTEVENT**

On April 18, 2007,the Company completed the redemption of the remaining outstanding amount of itsSenior Notes at 105.625% of the $90,000,000 principal amount, plus accrued andunpaid interest.  In connection with theredemption, the Company recorded a pre-tax charge totaling $7,330,000,representing the premium paid of $5,063,000 plus the write-off of unamortizeddebt issuance discount and deferred financing costs of $2,267,000.

17

----

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

**Results of Operations**

Thefollowing tables set forth certain operating data as a percentage of net salesand as a percentage change for the three and six months ended March 31:
| ** **                                       | ** ** | ** **                                   | ** ** | ** **                                 | ** ** | ** **                               | ** ** | ** **                               | ** ** | **% Period to Period  Increase (Decrease)** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                       | ** ** | **% of Net Sales (1)**   | ** ** | **Three  Months**                          | ** ** | **Six  Months**                          | ** ** |
| ** **                                       | ** ** | **Three  Months Ended  March 31,** | ** ** | **Six  Months Ended  March 31,** | ** ** | **Ended  March 31,  2007 vs.** | ** ** | **Ended  March 31,  2007 vs.** | ** ** |
| ** **                                       | ** ** | **2007**                                     | ** ** | **2006**                                   | ** ** | **2007**                                 | ** ** | **2006**                                 | ** ** | **2006**                                                        | ** ** | **2006** | ** ** |
| Net sales                                        |       | 100.0                                        | %          | 100.0                                      | %          | 100.0                                    | %          | 100.0                                    | %          | (0.5                                                            | )%         | (1.2 | )% |
| Cost of goods sold (2)                           |       | 47.1                                         |       | 47.4                                       |       | 47.6                                     |       | 48.6                                     |       | (1.2                                                            | )          | (3.2 | ) |
| Gross profit                                     |       | 52.9                                         |       | 52.6                                       |       | 52.4                                     |       | 51.4                                     |       | 0.0                                                             |       | 0.6 |   |
| Selling, general and administrative expenses (3) |       | 48.0                                         |       | 49.4                                       |       | 47.4                                     |       | 48.3                                     |       | (3.3                                                            | )          | (3.1 | ) |
| Operating income                                 |       | 4.9                                          |       | 3.2                                        |       | 5.0                                      |       | 3.1                                      |       | 51.8                                                            |       | 59.2 |   |
| Interest expense, net                            |       | 1.9                                          |       | 2.6                                        |       | 2.0                                      |       | 2.6                                      |       | (26.3                                                           | )          | (21.9 | ) |
| Loss on extinguishment of debt                   |       | —                                       |       | —                                     |       | 0.7                                      |       | —                                   |       | —                                                          |       | N.M. |   |
| Income before income taxes                       |       | 2.9                                          |       | 0.6                                        |       | 2.2                                      |       | 0.5                                      |       | 410.3                                                           |       | 325.0 |   |
| Income tax provision                             |       | 1.1                                          |       | 0.2                                        |       | 0.9                                      |       | 0.2                                      |       | 409.3                                                           |       | 324.9 |   |
| Net  income                                      |       | 1.8                                          | %          | 0.3                                        | %          | 1.4                                      | %          | 0.3                                      | %          | 411.0                                                           |       | 325.2 |   |

 

----

N.M.—Not meaningful

(1)          Components may not addto total due to rounding.

(2)     The “Cost of goods sold” line item includes:merchandise costs (including customs duty expenses), expenses related toinventory shrinkage, product related corporate expenses (including expensesrelated to our payroll, benefit costs and operating expenses of our buyingdepartments), inventory reserves (including lower of cost or market reserves),inbound freight charges, purchasing and receiving costs, inspection costs,warehousing costs, internal transfer costs, and the other costs of ourdistribution network.

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

Thefollowing table sets forth certain information concerning the number of ourstores and leased departments for the periods indicated:
|                           | ** ** | **Three Months Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **March 31, 2007**     | ** ** | **March 31, 2006** | ** ** |
| **Retail Locations** | ** ** | **Stores**                       | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** | **Stores** | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** |
| Beginning of period       |       | 807                              |       | 787 |   | 1,594 |   | 851 |   | 743 |   | 1,594 |   |
| Opened                    |       | 7                                |       | 59 |   | 66 |   | 5 |   | 2 |   | 7 |   |
| Closed                    |       | (19                              | )          | (25 | ) | (44 | ) | (25 | ) | (17 | ) | (42 | ) |
| End  of period            |       | 795                              |       | 821 |   | 1,616 |   | 831 |   | 728 |   | 1,559 |   |

 
|                           | ** ** | **Six Months Ended** | ** ** |
|---------------------------|------------|--------------------------------|------------|
| ** **                | ** ** | **March 31, 2007**   | ** ** | **March 31, 2006** | ** ** |
| **Retail Locations** | ** ** | **Stores**                     | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** | **Stores** | ** ** | **Leased  Departments** | ** ** | **Total Retail  Locations** | ** ** |
| Beginning of period       |       | 810                            |       | 731 |   | 1,541 |   | 852 |   | 739 |   | 1,591 |   |
| Opened                    |       | 10                             |       | 119 |   | 129 |   | 11 |   | 12 |   | 23 |   |
| Closed                    |       | (25                            | )          | (29 | ) | (54 | ) | (32 | ) | (23 | ) | (55 | ) |
| End  of period            |       | 795                            |       | 821 |   | 1,616 |   | 831 |   | 728 |   | 1,559 |   |

 

18

----

Our fiscal year ends onSeptember 30.  All references in thisdiscussion to our fiscal years refer to the fiscal year ended on September 30in the year mentioned.  For example, our “fiscal2007” will end on September 30, 2007.

**Three Months Ended March 31, 2007 and 2006**

***Net Sales.***  Our netsales for the second quarter of fiscal 2007 decreased by 0.5%, or approximately$0.7 million, to $143.9 million from $144.6 million for the second quarterof fiscal 2006.  The slight decrease innet sales versus last year resulted primarily from a decrease in comparablestore sales, largely offset by increased sales from our leased department andlicensed relationships and marketing partnerships.  Comparable store sales decreased by1.6% for the second quarter of fiscal 2007, based on 1,412 retail locations, versusa comparable store sales increase of 1.4% for the second quarter of fiscal2006, based on 998 retail locations.  Thecomparable store sales decrease of 1.6% for the second quarter of fiscal 2007was favorably impacted by approximately 1 percentage point due to having onemore Saturday in this fiscal year’s second quarter compared to last year.

As ofMarch 31, 2007, we operated a total of 795 stores and 1,616 total retaillocations, compared to 831 stores and 1,559 total retail locations as of March31, 2006.  In addition, our Oh Baby! byMotherhoodTM collection is available at Kohl’s® stores throughout the UnitedStates.  During the second quarter offiscal 2007, we opened seven stores, including four multi-brand store openings,and closed 19 stores, with nine of the store closings related to multi-brandstore openings.

***Gross Profit.***  Our grossprofit for the second quarter of fiscal 2007 increased slightly byapproximately $0.1 million, to $76.1 million from $76.0 million for the secondquarter of fiscal 2006, reflecting an increase in gross margin offsetting theeffect of our lower sales volume.  Gross profit as a percentage of netsales (gross margin) for the second quarter of fiscal 2007 was 52.9% comparedto 52.6% for the second quarter of fiscal 2006.  The increase ingross margin of 0.3 percentage points compared to the prior year resultedprimarily from less price promotional activity compared to last year, acontinued reduction in product costs and increased marketing partnershiprevenues, somewhat offset by increased product overhead expenses and the effectof increased sales from our licensed arrangement.

***Selling, General and AdministrativeExpenses.***  Our selling, general and administrativeexpenses for the second quarter of fiscal 2007 decreased by 3.3%, or $2.3million, to $69.1 million from $71.4 million for the second quarter offiscal 2006.  This decrease in expensefor the quarter resulted primarily from decreased store closing costs, lowervariable incentive compensation costs and lower store occupancy expenses, as aresult of our reduced number of stores, partially offset by increased employeebenefits expenses.  As a percentage ofnet sales, selling, general and administrative expenses decreased to 48.0% forfiscal 2007 compared to 49.4% for fiscal 2006. This decrease in the expense percentage for the quarter resultedprimarily from the decreased store closing costs and lower incentivecompensation and store occupancy expenses, partially offset by higher employeebenefits expenses.  We recorded a gain of$0.1 million related to store closings for the second quarter of fiscal 2007,as compared to $1.4 million of charges incurred for store closings in thesecond quarter of fiscal 2006 (primarily lease termination expenses).  The significant majority of the store closing costs in fiscal 2006 related to storesclosed in conjunction with the opening of our Destination MaternityTM superstore in New York City.  In addition, we incurred impairment chargesfor write-downs of store long-lived assets of $0.1 million for fiscal2007, as compared to $0.3 million for fiscal 2006.

***Operating Income.***  Our operating income for the secondquarter of fiscal 2007 increased by 51.8%, or $2.4 million, to $7.0 millionfrom $4.6 million for the second quarter of fiscal 2006, due primarily tolower selling, general and administrative expenses.  Operating income as a percentage of net sales(operating income margin) for thesecond quarter of fiscal 2007 increased to 4.9% from 3.2% for the secondquarter of fiscal 2006.  The increase inoperating income margin was due primarily to our lower operating expense ratioand, to a lesser extent, our improved gross margin.

***Interest Expense, Net.***  Our netinterest expense for the second quarter of fiscal 2007 decreased by 26.3%, or$1.0 million, to $2.8 million from $3.8 million for the second quarter offiscal 2006.  This decrease was primarilydue to the repurchase of $35.0 million of our Senior Notes from August 2006through December 2006.  During the secondquarter of fiscal 2007, our average level of direct borrowings under our creditfacility was $1.2 million, but we did not have any direct borrowings under ourcredit facility as of March 31, 2007. During the second quarter of fiscal 2006, we had no direct borrowingsunder our credit facility.

***Income Tax Provision.***  Oureffective tax rate was a provision of 39.0% for the second quarter of fiscal2007 and 39.1% for the second quarter of fiscal 2006.  We expect our effective tax rate for the full year fiscal 2007 to be approximately39%.

19

----

***Net Income.***  Netincome for the second quarter of fiscal 2007 was $2.6 million, or $0.41 pershare (diluted), compared to net income of $0.5 million, or $0.09 per share(diluted), for the second quarter of fiscal 2006, representing increases versuslast year of 411% in net income and 351% in diluted earnings per share.

Our average diluted shares outstanding of 6,227,000 forthe second quarter of fiscal 2007 was 13.2% higher than the 5,501,000 averagediluted shares outstanding for the second quarter of fiscal 2006.  Theincrease in average diluted shares outstanding reflects higher sharesoutstanding in fiscal 2007 compared to fiscal 2006, as a result of stock optionexercises and restricted stock awards, as well as the higher dilutive impact ofoutstanding stock options in fiscal 2007 compared to fiscal 2006.

**Six Months Ended March 31, 2007 and 2006**

***Net Sales.***  Our netsales for the first six months of fiscal 2007 decreased by 1.2%, or $3.7million, to $292.3 million from $296.0 million for the first six months offiscal 2006.  The slight decrease in netsales versus last year resulted primarily from a decrease in comparable storesales, largely offset by increased sales from our leased department and licensedrelationships and marketing partnerships. Comparable store sales decreased by 1.9% for the first six monthsof fiscal 2007, based on 1,395 retail locations, versus a comparable storesales increase of 2.4% for the second quarter of fiscal 2006, based on 982retail locations.

***Gross Profit.***  Our grossprofit for the first six months of fiscal 2007 increased by 0.6%, to $153.1million from $152.2 million for the first six months of fiscal 2006, reflectingan increase in gross margin offsetting the effect of our lower salesvolume.  Gross profit as a percentage of net sales (gross margin) for thefirst six months of fiscal 2007 was 52.4% compared to 51.4% for the first sixmonths of fiscal 2006.  The increase in gross margin of 1.0percentage points compared to the prior year resulted primarily from a higher maintained gross margin in our ownstores as a result of lower overall markdowns compared to last year as well asthe impact of our continued sourcing improvements.

***Selling, General and AdministrativeExpenses.***  Our selling, general and administrativeexpenses for the first six months of fiscal 2007 decreased by 3.1%, or $4.5million, to $138.6 million from $143.1 million for the first six months offiscal 2006.  This decrease in expensefor the six-month period resulted primarily from lower store occupancyexpenses, as a result of our reduced number of stores, decreased store closingcosts, a decrease in impairment charges for write-downs of store long-livedassets and lower variable incentive compensation costs, partially offset byincreased employee benefits and legal expenses. As a percentage of net sales, selling, general and administrativeexpenses decreased to 47.4% for fiscal 2007 compared to 48.3% for fiscal2006.  This decrease in the expensepercentage for the six-month period resulted primarily from decreased storeclosing costs, the decrease in impairment charges, and lower store occupancyexpenses and incentive compensation, partially offset by higher employeebenefits and legal expenses.  We recordeda gain of $0.1 million related to store closings for the first six months offiscal 2007, as compared to $1.6 million of charges incurred for store closingsin the first six months of fiscal 2006 (primarily lease terminationexpenses).  The significant majority of the store closing costs in fiscal2006 related to stores closed in conjunction with the opening of ourDestination MaternityTM superstore inNew York City.  In addition, we incurredimpairment charges for write-downs of store long-lived assets of $0.4million for fiscal 2007, as compared to $1.9 million for fiscal 2006.

***Operating Income.***  Our operating income for the first sixmonths of fiscal 2007 increased by 59.2%, or $5.4 million, to $14.5 millionfrom $9.1 million for the first six months of fiscal 2006, due primarilyto lower selling, general and administrative expenses and, to a lesser extent,increased gross profit.  Operating incomeas a percentage of net sales (operating income margin) for the first six months of fiscal 2007 increasedto 5.0% from 3.1% for the first six months of fiscal 2006.  The increase in operating income margin wasdue to our improved gross margin and our lower operating expense ratio.

***Interest Expense, Net.***  Our netinterest expense for the first six months of fiscal 2007 decreased by 21.9%, or$1.7 million, to $5.9 million from $7.6 million for the first six monthsof fiscal 2006.  This decrease wasprimarily due to the repurchase of $35.0 million of our Senior Notes fromAugust 2006 through December 2006 and, to a lesser extent, increased interestincome resulting from increased balances of cash and short-term investments.  During the first six months of fiscal 2007,our average level of direct borrowings under our credit facility was $0.6million, but we did not have any direct borrowings under our credit facility asof March 31, 2007.  During the first sixmonths of fiscal 2006, our average level of direct borrowings under our creditfacility was $0.7 million.

***Loss on Extinguishment of Debt*. **In December 2006, we repurchased $25.0million principal amount of our outstanding Senior Notes. The $25.0 millionSenior Note repurchase resulted in a first quarter pre-tax charge of $2.1million, representing the premium paid plus the write-off of unamortizeddebt issuance discount and deferred financing costs.

20

----

***Income Tax Provision.***  Oureffective tax rate was a provision of 39.0% for the second quarter of fiscal2007 and fiscal 2006.  We expect our effective tax rate for the full year fiscal2007 to be approximately 39%.

***Net Income.***  Netincome for the first six months of fiscal 2007 was $4.0 million, or $0.64 pershare (diluted), compared to net income of $0.9 million, or $0.17 per share(diluted), for the first six months of fiscal 2006, representing increasesversus last year of 325% in net income and 272% in diluted earnings per share.

Our average diluted shares outstanding of 6,183,000 forthe first six months of fiscal 2007 was 14.5% higher than the 5,402,000 averagediluted shares outstanding for the first six months of fiscal 2006.  Theincrease in average diluted shares outstanding reflects higher sharesoutstanding in fiscal 2007 compared to fiscal 2006, as a result of stock optionexercises and restricted stock awards, as well as the higher dilutive impact ofoutstanding stock options in fiscal 2007 compared to fiscal 2006.

**Seasonality**

Our business, like that of many other retailers, isseasonal.  Our quarterly net saleshave historically been highest in our third fiscal quarter, corresponding tothe Spring selling season, followed by the first fiscal quarter, correspondingto the Fall/holiday selling season. Given the typically higher gross margin we experience in the thirdfiscal quarter compared to other quarters, the relatively fixed nature of mostof our operating expenses and interest expense, and the historically highersales level in the third quarter, we have typically generated a very significantpercentage of our full year operating income and net income during the thirdquarter. Results for any quarter are not necessarily indicative of the resultsthat may be achieved for a full fiscal year.  Quarterly results mayfluctuate materially depending upon, among other things, the timing of newstore openings and new leased department openings, net sales and profitabilitycontributed by new stores and leased departments, increases or decreases incomparable store sales, the timing of the fulfillment of purchase orders underour product and license arrangements, adverse weather conditions, shifts in thetiming of certain holidays and promotions, changes in inventory and productionlevels and the timing of deliveries of inventory, and changes in ourmerchandise mix.

**Liquidity and Capital Resources**

Ourcash needs have primarily been for: (i) debt service, (ii) capitalexpenditures, including leasehold improvements, fixtures and equipment for newstores, store relocations and expansions of our existing stores, as well asimprovements and new equipment for our distribution and corporate facilitiesand information systems, and (iii) working capital, including inventory tosupport our new business initiatives and our new and existing retail locations.  We have historically financed these capitalrequirements from cash flows from operations, borrowings under our creditfacility or available cash balances.

InNovember 2006, our Board of Directors authorized the repurchase of $25.0million principal amount of our Senior Notes. This was in addition to the repurchase of $10.0 million principal amountof our Senior Notes completed during August and September 2006.  On December 8, 2006, we completed therepurchase of the authorized amount at 105.625% of the $25.0 million principalamount, plus accrued and unpaid interest. After giving effect to both the $10.0 million repurchase in fiscal 2006and the $25.0 million redemption completed on December 8, 2006, we have $90.0million remaining outstanding principal amount of the original$125.0 million principal amount of our Senior Notes as of March 31,2007.  On April 18, 2007, we completedthe redemption of the remaining $90.0 million principal amount of ouroutstanding Senior Notes through a new Term Loan financing, which we expectwill result in a decrease in annualized pre-tax interest expense ofapproximately $3.6 million.  Thisdecrease in annualized interest expense from the new Term Loan financing willbegin to be recognized in our third quarter. The new Term Loan extends the maturity for $90.0 million principalamount of our debt from August 1, 2010 (the maturity date of the redeemedSenior Notes) to March 13, 2013 (the maturity date of the new Term Loan), withquarterly required principal payments of $225,000.  The April 2007 redemption of the SeniorNotes, which was at a price of 105.625% of principal amount, plus accruedinterest, will result in a “Loss on extinguishment of debt” of approximately$7.3 million on a pre-tax basis, consisting of the approximately $5.1 millioncash redemption premium and approximately $2.2 million of non-cash expense fromthe write-off of unamortized deferred financing costs and debt issuance costs,which will be recognized in our third quarter.

Cash and cash equivalents decreased by $11.8 millionduring the first six months of fiscal 2007 compared to an increase of $13.5million for the first six months of fiscal 2006.  Cash provided byoperations of $10.5 million for the first six months of fiscal 2007 decreasedby $12.5 million from the $23.0 million cash provided by operations for thefirst six months of fiscal 2006.  This decrease in cash provided byoperations was primarily the result of: (i) an increase in inventories in thefirst six months of fiscal 2007 compared to a decrease in the first six monthsof fiscal 2006, and (ii) a decrease in accounts payable, accrued expenses andother current liabilities in the first six months of fiscal 2007 compared to anincrease in the first six months of fiscal 2006,

21

----

partially offsetby increased earnings and a $2.4 million federal income tax refund.  Total inventories as of March 31, 2007 were$98.4 million, an increase of approximately $4.1 million or 4.4% above the$94.3 million inventories balance as of September 30, 2006.  Total inventories of $96.8 million as ofMarch 31, 2006 were $9.1 million below the $105.9 million inventories balanceas of September 30, 2005.  During thefirst six months of fiscal 2007, we used a significant majority of our cashprovided by operations to pay for capital expenditures.  We funded the $25.0million repurchase of our Senior Notes byutilizing available cash, cash generated by net proceeds from the sales (net ofpurchases) of short-term investments, cash generated from stock optionexercises, as well as the remaining cash provided by operations.  During the first six months of fiscal 2006, weused our cash provided by operations primarily to increase our cash balance and short-terminvestments and, to a much lesser extent, to pay for capitalexpenditures.

Forthe first six months of fiscal 2007, we spent $9.1 million on capitalexpenditures, including $5.7 million for leasehold improvements, fixturesand equipment principally for new store facilities, as well as improvements toexisting stores, and $3.4 million for our information systems anddistribution and corporate facilities. This compares to $8.0 million in capital expenditures for the firstsix months of fiscal 2006, of which $7.0 million was spent for new storefacilities and improvements to existing stores and retail locations, and$1.0 million for our information systems and distribution and corporatefacilities. The increase in capital expenditures was primarily due to increasedexpenditures for information systems enhancements, partially offset bydecreased expenditures for new stores.

OnMarch 13, 2007, we entered into a Term Loan and Security Agreement for a $90.0million senior secured Term Loan B due March 13, 2013, the proceeds of whichwere received on April 18, 2007 and were used to redeem the remaining $90.0million principal amount of our Senior Notes. The interest rate on the Term Loan is equal to, at our election, either(i) the prime rate plus 1.00%, or (ii) the LIBOR rate plus the applicablemargin.  The applicable margin isinitially fixed at 2.50% through and including the fiscal quarter ending September30, 2007.  Thereafter, the applicablemargin for LIBOR rate borrowings is either 2.25% or 2.50%, depending on ourConsolidated Leverage Ratio (as defined). In order to mitigate our floating rate interest risk on the variablerate Term Loan, we entered into an interest rate swap agreement with the Agentbank for the Term Loan that commenced on April 18, 2007, the date the $90.0million Term Loan proceeds were received, and expires on April 18, 2012.  The interest rate swap agreement enables usto effectively convert an amount of the Term Loan equal to the notional amountof the interest rate swap from a floating interest rate of LIBOR plus 2.50%(subject to reduction to LIBOR plus 2.25% if we achieve a specified leverageratio), to a fixed interest rate of 7.50% (subject to reduction to 7.25% if weachieve a specified leverage ratio).  Thenotional amount of the interest rate swap is $75.0 million at inception of theswap agreement and decreases over time to a notional amount of $5.0 million atthe expiration date.  Commencing with thethird quarter of fiscal 2007, we are required to make minimum repayments of theprincipal amount of the Term Loan in quarterly installments of $225,000each.  Additionally, the Term Loan can beprepaid at our option, in part or in whole, at any time, without any prepaymentpremium or penalty.  The Term LoanAgreement imposes certain restrictions on our ability to, among other things,incur additional indebtedness, pay dividends, repurchase stock, and enter intoother various types of transactions.  TheTerm Loan Agreement also contains quarterly financial covenants that require usto maintain a specified maximum permitted Consolidated Leverage Ratio and a specifiedminimum permitted Consolidated Interest Coverage Ratio (as defined).  As of March 31, 2007, we were in compliancewith the financial covenants of our Term Loan Agreement.

Inconnection with the Term Loan transaction, we amended our existing $60.0million revolving Credit Facility in order to permit the new Term Loanfinancing.  This amendment of the CreditFacility also extends its maturity from October 15, 2009 to March 13, 2012,modestly increases its size to $65.0 million, and reduces the LIBOR-basedinterest rate option under the facility by 0.25%.  There are no financial requirements under theCredit Facility provided that Excess Availability (as defined) does not fallbelow 10% of the Borrowing Base (as defined). If Excess Availability were to fall below 10% of the Borrowing Base, wewould be required to meet a specified minimum Fixed Charge Coverage Ratio (asdefined).  During the first six months offiscal 2007 and the first six months of fiscal 2006, we exceeded the minimumrequirements for Excess Availability.

As of March 31, 2007, we had no outstandingborrowings under the Credit Facility and $8.4 million in letters of credit,with $56.6 million of availability under our credit line.  We had average direct borrowings of $0.6 million under ourcredit facility for the first six months of fiscal 2007, compared toaverage direct borrowings of $0.7 million during the first six months of fiscal2006.

Our management believesthat our current cash and working capital positions, expected operating cashflows and available borrowing capacity under our Credit Facility, will besufficient to fund our working capital, capital expenditures and debt repaymentrequirements and to fund stock and/or debt repurchases, if any, for at leastthe next twelve months.

###### **Critical Accounting Policies and Estimates**

Our consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States. These generally acceptedaccounting principles require management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and

22

----

liabilities at the dateof our consolidated financial statements and the reported amounts of net salesand expenses during the reporting period.

Our significantaccounting policies are described in Note 2 of “Notes to ConsolidatedFinancial Statements” in our Annual Report on Form 10-K for the year endedSeptember 30, 2006.  We believe that thefollowing discussion addresses our critical accounting policies, which arethose that are most important to the portrayal of our financial condition andresults of operations and require management’s most difficult, subjective andcomplex judgments, often as a result of the need to make estimates about theeffect of matters that are inherently uncertain.  If actual results were to differsignificantly from estimates made, future reported results could be materiallyaffected.  However, we are not currentlyaware of any reasonably likely events or circumstances that would result inmaterially different results.

Oursenior management has reviewed these critical accounting policies and estimatesand the related Management’s Discussion and Analysis of Financial Condition andResults of Operations with the Audit Committee of our Board of Directors.

***Inventories.***  Wevalue our inventories, which consist primarily of maternity apparel, at thelower of cost or market. Cost is determined on the first-in, first-out method(FIFO) and includes the cost of merchandise, freight, duty and brokerfees.  A periodic review of inventoryquantities on hand is performed in order to determine if inventory is properlyvalued at the lower of cost or market. Factors related to current inventories such as future consumer demandand fashion trends, current aging, current analysis of merchandise based onreceipt date, current and anticipated retail markdowns or wholesale discounts,and class or type of inventory are analyzed to determine estimated netrealizable values.  Criteria utilized byus to quantify aging trends include factors such as the amount of merchandisereceived within the past twelve months, merchandise received more than one yearbefore with quantities on-hand in excess of 12 months of sales, andmerchandise currently selling below cost. A provision is recorded to reduce the cost of inventories to itsestimated net realizable value, if required. Inventories as of March 31, 2007 and September 30, 2006 totaled$98.4 million and $94.3 million, respectively, representing 36.2% and32.8% 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.  Anysignificant unanticipated changes in the factors noted above could have asignificant impact on the value of our inventories and our reported operatingresults.

***Long-Lived Assets.***  Ourlong-lived assets consist principally of store leasehold improvements (includedin the “Property, plant and equipment, net” line item in our consolidatedbalance sheets) and, to a much lesser extent, lease acquisition costs (includedin the “Other intangible assets, net” line item in our consolidated balancesheets).  These long-lived assets arerecorded at cost and are amortized using the straight-line method over theshorter of the lease term or their useful life. Net long-lived assets as of March 31, 2007 and September 30, 2006totaled $73.8 million and $72.2 million, respectively, representing27.1% and 25.1% of total assets, respectively.

Inassessing potential impairment of these assets, we periodically evaluate thehistorical and forecasted operating results and cash flows on a store-by-storebasis.  Newly opened stores may take timeto generate positive operating and cash flow results.  Factors such as: (i) store type, thatis, company store or leased department, (ii) store concept, that is,Motherhood Maternity®, Mimi Maternity®, A Pea in the Pod® or DestinationMaternity, (iii) store location, for example, urban area versus suburb,(iv) current marketplace awareness of our brands, (v) local customerdemographic data, (vi) anchor stores within the mall in which our store islocated and (vii) current fashion trends are all considered in determiningthe time frame required for a store to achieve positive financial results,which is assumed to be within two years from the date a store location isopened.  If economic conditions aresubstantially different from our expectations, the carrying value of certain ofour long-lived assets may become impaired. As a result of our impairment assessment, we recorded write-downsof long-lived assets of $0.4 million forthe first six months of fiscal 2007, and $1.9 million for the first six monthsof fiscal 2006, respectively.

***Goodwill*.** The purchase method of accounting for business combinations requires theuse of estimates and judgments to allocate the purchase price paid foracquisitions to the fair value of the net tangible and identifiable intangibleassets.  Goodwill represents the excessof the aggregate purchase price over the fair value of net assets acquired inbusiness combinations and is separately disclosed in our consolidated balancesheets.  As of both March 31, 2007 andSeptember 30, 2006, goodwill totaled $50.4 million, representing18.5% and 17.5% of total assets, respectively. In June 2001, the FASB issued SFAS No. 142, “Goodwill andOther Intangible Assets.” SFAS No. 142 requires that goodwill no longer be amortized,but instead be tested for impairment at least annually or as impairmentindicators arise.

Theimpairment test requires us to compare the fair value of business reportingunits to their carrying value,

23

----

including assignedgoodwill.  In assessing potentialimpairment of goodwill, we have determined that we have one reporting unit forpurposes of applying SFAS No. 142 based on our reportingstructure.  The fair value of our singlereporting unit is determined based on the fair market value of our outstandingcommon stock on a control basis and, if necessary, an outside independentvaluation is obtained to determine the fair value.  The carrying value of our single reportingunit, expressed on a per share basis, is represented by the book value per shareof our outstanding common stock.  Theresults of the annual impairment test performed as of September 30, 2006,indicated the fair value of the reporting unit exceeded its carrying value.  If the per share fair value of our singlereporting unit was less than the book value per share on September 30,2006, our goodwill would likely have been impaired.  As of March 31, 2007, our book value was$15.48 per share of outstanding common stock and the closing trading price ofour common stock was $33.14 per share.

***Accounting for Income Taxes.***  Aspart of 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 toestimate our actual current tax exposure together with assessing temporarydifferences resulting from differing treatment of items, such as depreciationof property and equipment and valuation of inventories, for tax and accountingpurposes.  We determine our provision forincome taxes based on federal and state tax laws and regulations currently ineffect, some of which have been recently revised.  Legislation changes currently proposed bycertain of the states in which we operate, if enacted, could increase ourtransactions or activities subject to tax. Any such legislation that becomes law could result in an increase in ourstate income tax expense and our state income taxes paid, which could have amaterial and adverse effect on our net income or cash flow.

Thetemporary differences between the book and tax treatment of income and expensesresult in deferred tax assets and liabilities, which are included within ourconsolidated balance sheets.  We mustthen assess the likelihood that our deferred tax assets will be recovered fromfuture taxable income.  Actual resultscould differ from our assessments if adequate taxable income is not generatedin future periods.  Net deferred taxassets as of March 31, 2007 and September 30, 2006 totaled$19.7 million and $18.6 million, respectively, representing 7.3% and6.5% of total assets, respectively.  Tothe extent we believe that recovery is not more likely than not, we mustestablish a valuation allowance.  To theextent we establish a valuation allowance or change the allowance in a futureperiod, income tax expense will be impacted.

***Accounting for Contingencies*.** From time to time, we are named as a defendant in legal actionsarising from our normal business activities. We account for contingencies such as these in accordance with SFASNo. 5, “Accounting for Contingencies.” SFAS No. 5 requires us to record an estimated loss contingency wheninformation available prior to issuance of our financial statements indicatesthat it is probable that an asset has been impaired or a liability has beenincurred at the date of the financial statements and the amount of the loss canbe reasonably estimated.  Aninterpretation of SFAS No. 5 further states that when there is a range ofloss and no amount within that range is a better estimate than any other, thenthe minimum amount of the range shall be accrued.  Accounting for contingencies arising fromcontractual or legal proceedings requires management, after consultation withoutside legal counsel, to use its best judgment when estimating an accrualrelated to such contingencies.  Asadditional information becomes known, our accrual for a loss contingency couldfluctuate, thereby creating variability in our results of operations fromperiod to period.  Likewise, an actualloss arising from a loss contingency which significantly exceeds the amountaccrued for in our financial statements could have a material adverse impact onour operating results for the period in which such actual loss becomes known.

**Recent Accounting Pronouncements**

*FASBInterpretation No. 48*

In June 2006, the FASB issued FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes.”  FASB Interpretation No. 48 provides guidancefor the recognition and measurement of uncertain tax positions in an enterprise’sfinancial statements.  Recognitioninvolves a determination of whether it is more likely than not that a taxposition will be sustained upon examination with the presumption that the taxposition will be examined by the appropriate taxing authority that would havefull knowledge of all relevant information. This interpretation is effective for fiscal years beginning afterDecember 15, 2006.  Early adoption ispermitted if the enterprise has not issued financial statements, includinginterim financial statements, in the period of adoption.  The impact from adoption of FASBInterpretation No. 48, if any, on our consolidated financial position orresults of operations has not yet been determined.  We plan to adopt FASB Interpretation No. 48effective as of October 1, 2007.

24

----

*EITFIssue 06-3*

*In June2006, the EITF issued EITF Issue 06-3, “How Taxes Collected from Customers andRemitted to Governmental Authorities Should Be Presented in the IncomeStatement (That Is, Gross versus Net Presentation).”  EITF Issue 06-3 provides guidance related tothe presentation in financial statements of any tax assessed by a governmentalauthority that is directly imposed on a revenue-producing transaction between aseller and a customer, including, but not limited to, sales, use, value added,and some excise taxes.  The EITFconcluded that the presentation of taxes within the scope of EITF Issue 06-3 oneither a gross (included in revenues and costs) or a net (excluded fromrevenues) basis is an accounting policy decision that should disclosed.  In addition, the aggregate amount of any suchtaxes that are reported on a gross basis should be disclosed in interim andannual financial statements.  Theguidance in EITF Issue 06-3 is effective for interim and annual reportingperiods beginning after December 15, 2006. We report taxes within the scope of EITF Issue 06-3 on a net basis andadoption did not have any impact on our consolidated financial statements.*

SAB No. 108

InSeptember 2006, the SEC issued SAB No. 108, “Considering the Effects of PriorYear Misstatements when Quantifying Misstatements in Current Year FinancialStatements.”  SAB No. 108 states that SECregistrants should use both a balance sheet approach and an income statementapproach when quantifying and evaluating the materiality of a misstatement,contains guidance on correcting errors under the dual approach and providestransition guidance for correcting errors existing in prior years.   SAB No. 108 is effective for annualfinancial statements covering the first fiscal year ending after November 15,2006.  We do not expect the adoption ofSAB No. 108 to have a material impact on our consolidated financial statements.

SFAS No. 157

InSeptember 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements.”  SFAS No. 157 definesfair value, establishes a framework for measuring fair value in U.S. generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements.  SFAS No. 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years.  The impact from adoption of SFAS No. 157, ifany, on our consolidated financial position or results of operations has notyet been determined.

SFAS No. 158

InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans.”  SFAS No. 158 requires an employer torecognize the funded status of a benefit plan, measured as the differencebetween plan assets at fair value and the projected benefit obligation, in itsstatement of financial position.  SFASNo. 158 also requires an employer to measure defined benefit plan assets andobligations as of the date of the employer’s fiscal year-end statement offinancial position.  This statement iseffective as of the end of the fiscal year ending after December 15, 2006,except for the requirement to measure plan assets and obligations as of thedate of the employer’s fiscal year-end statement of financial position, whichis effective for fiscal years ending after December 15, 2008.  In March 2007, we entered into SERPAgreements with two executives and adopted the provisions of SFAS No. 158.

SFAS No. 159

*InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities.” SFAS No. 159 provides companies with an option to report selectedfinancial assets and liabilities at fair value and requires entities to displaythe fair value of those assets and liabilities for which the company has chosento use fair value on the face of the balance sheet.  SFAS No. 159 is effective for financialstatements issued for fiscal years beginning after November 15, 2007.  The impact from adoption of SFAS No. 159, ifany, on our consolidated financial position or results of operations has notyet been determined.*

**Forward-Looking Statements**

Someof the information in this report, including information incorporated byreference, if applicable, (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”).  Theforward-looking statements involve a number of risks anduncertainties.  A number of factors couldcause our actual results, performance, achievements or industry results to bematerially different from any future results, performance or achievementsexpressed or implied by these forward-looking statements.  These factors include, but are not limitedto: the success of our new business initiatives, future sales trends in ourexisting store base, weather, changes in consumer spending patterns, raw materialprice increases, consumer preferences and

25

----

overall economicconditions, the impact of competition and pricing, availability of suitablestore locations, continued availability of capital and financing, ability tohire and develop senior management and sales associates, ability to develop andsource merchandise, ability to receive production from foreign sources on atimely basis, potential stock repurchases, potential debt prepayments, war oracts of terrorism and other factors referenced in our Annual Report on Form10-K, including those set forth under the caption “Risk Factors.”

Inaddition, 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, any forward-lookingstatements included in this report do not purport to be predictions of futureevents or circumstances and may not be realized. Forward-lookingstatements can be identified by, among other things, the use of forward-lookingterms such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “proforma,” “anticipates,” “intends,” “continues,” “could,” “estimates,” “plans,” “potential,”“predicts,” “goal,” “objective,” or the negative of any of these terms, orcomparable terminology, or by discussions of our outlook, plans, goals,strategy or intentions.  Forward-lookingstatements speak only as of the date made. We assume no obligation to update any of these forward-lookingstatements to reflect actual results, changes in assumptions or changes inother factors affecting these forward-looking statements.

**Item 3.  Quantitative andQualitative Disclosures About Market Risk**

Mothers Work is exposed to market risk from changes ininterest rates.  We have not entered into any market sensitive instrumentsfor trading 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 ofMarch 31, 2007, we had cash and cash equivalents of $7.1 million, which includemoney market accounts that bear interest at variable rates.  A changein market interest rates earned on the cash and cash equivalents impacts the interest income and cash flows, butdoes not materially impact the fair market value of the financialinstruments.  Due to the average maturityand conservative nature of our investment portfolio, we believe a sudden changein interest rates would not have a material effect on the value of ourinvestment portfolio.

As of March 31, 2007, the principal components of ourdebt portfolio were the $90.0 million of Senior Notes and the$65.0 million Credit Facility, both of which are denominated in U.S.dollars.  On April 18, 2007, we redeemed the Senior Notes with theproceeds from a new variable rate $90.0 million Term Loan financing.  The fair market value of the debt portfoliois referred to as the “Debt Value.”

Our Credit Facility carries a variable interest ratethat is tied to market indices.  As of March 31, 2007, we had no directborrowings and $8.4 million of letters of credit outstanding under our CreditFacility.  Borrowings under the Credit Facility would have resulted ininterest at a rate between approximately 6.57% and 8.25% per annum as of March31, 2007.  Any future borrowings under the Credit Facility would, to theextent of outstanding borrowings, be affected by changes in market interest rates. A change in market interest rates on thevariable rate portion of the debt portfolio impacts the interest expenseincurred and cash flows, but does not impact the Debt Value of the financialinstrument.

The Term Loan carries a variable interest rate that istied to market indices.  The sensitivityanalysis as it relates to this portion of our debt portfolio assumes aninstantaneous 100 basis point move in interest rates from their levels as ofMarch 31, 2007, as if the Term Loan financing and redemption of the SeniorNotes had occurred on that date, with all other variables held constant.  TheDebt Value of the Term Loan is approximately $90.0 million; its principalamount.  A 100 basis point increase in market interest rates would result in additionalannual interest expense on the Term Loan of approximately $0.9 million.  A 100 basis point decline in marketinterest rates would correspondingly lower our annual interest expense onthe Term Loan by approximately $0.9 million.

Inorder to mitigate our floating rate interest risk on the variable rate TermLoan, we entered into an interest rate swap agreement with the Agent bank forthe Term Loan that commenced on April 18, 2007. The interest rate swap agreement enables us to effectively convert anamount of the Term Loan equal to the notional amount of the interest rate swapfrom a floating interest rate (LIBOR plus 2.50% at inception), to a fixedinterest rate (7.50% at inception).  Thenotional amount of the interest rate swap is $75.0 million at inception of theswap agreement and decreases over time to a notional amount of $5.0 million atthe expiration date.  Based on thescheduled swap notional amount during the first year of the swap agreement, a 100 basis point increase in market interestrates would result in interest expense savings for the year ofapproximately $0.7 million.  A 100basis point decline in market interest rates would correspondinglyincrease our interest expense for the year by approximately $0.7 million.  Thus, a 100 basis point increase in marketinterest rates during the first year of the swap agreement would result inadditional interest expense for the year of approximately $0.2 million onthe Term Loan and swap agreement combined. A 100 basis point decline in market interest rates during the first yearof the swap agreement would correspondingly lower our interest expense for theyear by approximately $0.2 million on the Term Loan and swap agreementcombined.

Basedon the limited other variable rate debt included in our debt portfolio as ofMarch 31, 2007, a 100 basis point

26

----

increase ininterest rates would result in additional interest incurred for the year ofless than $0.1 million.  A 100 basispoint decrease in interest rates would correspondingly lower our interestexpense for the year by less than $0.1 million.

Other than as described above, we do not believe thatthe market risk exposure on other financial instruments is material.

**Item 4.  Controls and Procedures**

***DisclosureControls and Procedures***

Our disclosure controlsand procedures are designed to ensure that information required to be disclosedby us in the reports that are filed or submitted under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.  These disclosure controls and proceduresinclude controls and procedures designed to ensure that information required tobe disclosed under the Exchange Act is accumulated and communicated to ourmanagement on a timely basis to allow decisions regarding requireddisclosure.  We evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures as of March 31, 2007. Based on this evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that as of March31, 2007, these controls and procedures were effective.

***InternalControl over Financial Reporting***

There have been no changesin internal control over financial reporting identified in connection with theforegoing evaluation that occurred during the fiscal quarter ended March 31,2007, that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

27

----

**PART II. OTHER INFORMATION**

**Item1.  Legal Proceedings**

Fromtime to time, the Company is named as a defendant in legal actions arising fromits normal business activities.  Althoughthe amount of any liability that could arise with respect to currently pendingactions cannot be accurately predicted, the Company does not believe that theresolution of any pending action will have a material adverse effect on itsfinancial position, results of operations or liquidity.

**Item 1A.  Risk Factors**

In addition to the other information set forth in thisForm 10-Q, you should carefully consider the factors discussed in Part I,Item 1A “Risk Factors” of our Form 10-K for the yearended September 30, 2006.  The risks described in our Form 10-Kare not the only risks that we face. Additional risks not presently known to us or that we donot currently consider significant may also have anadverse effect on us. If any of the risks actuallyoccur, our business, results of operations, cash flows or financialcondition could suffer.

## **Item4.   Submission of Matters to a Vote ofSecurity Holders**

Atthe Company’s Annual Meeting of Stockholders held on January 19, 2007, thestockholders of the Company elected two directors of the Company, approved the Company’sManagement Incentive Program, and ratified the Audit Committee’s appointment ofKPMG LLP as the Company’s independent registered public accounting firmfor the fiscal year ending September 30, 2007.

Mr.Dan W. Matthias and Mr. Elam M. Hitchner, III were elected to serveas directors at the meeting.  The votingresults were 5,208,331 shares for and 45,406 shares withheld for Mr.Matthias and 5,031,425 shares for and 222,312 shares withheld forMr. Hitchner.  Rebecca C. Matthias, Joseph A. Goldblum, Anne T.Kavanagh, William A. Schwartz, Jr. and David Schlessinger continue to servetheir terms as directors.

The shareholders voted 3,532,201shares for, 239,830 shares against, 2,586 shares abstained, and there were1,479,120 broker non-votes for the adoption of the Company’s ManagementIncentive Program.  The shareholdersvoted 5,242,167 shares for, 9,547 shares against, and 2,023 shares abstainedfor the ratification of the appointment of KPMG LLP.

**Item 6.  Exhibits**
| Exhibit  No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.30*† |       | Management Incentive Program (effective as of  December 13, 2006) (Exhibit 10.1 to the Company’s Current Report on Form 8-K  dated December 13, 2006).                                                                                                                                                                                                                                                                                                                             |
| 10.31*† |       | Second Amended and Restated Employment Agreement  with Rebecca C. Matthias dated March 2, 2007 (Exhibit 10.1 to the Company’s  Current Report on Form 8-K dated March 2, 2007 (the “March 2, 2007  Form 8-K”)).                                                                                                                                                                                                                                                     |
| 10.32*† |       | Second Amended and Restated Employment Agreement  with Dan W. Matthias dated March 2, 2007 (Exhibit 10.2 to the March 2, 2007  Form 8-K).                                                                                                                                                                                                                                                                                                                                          |
| 10.33†  |       | Supplemental Retirement Agreement with Rebecca C.  Matthias dated March 2, 2007.                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.34†  |       | Supplemental Retirement Agreement with Dan W.  Matthias dated March 2, 2007.                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.35*       |       | Term Loan and Security Agreement, dated March 13,  2007, among Mothers Work, Inc. and Cave Springs, Inc., each as a Borrower,  and Mothers Work Canada, Inc., as a Guarantor, and Bank of America, N.A, as  Term Administrative Agent and Term Collateral Agent, and Banc of America  Securities LLC, as Sole Lead Arranger and Sole Book Runner (Exhibit 10.1 to  the Company’s Current Report on Form 8-K dated March 13, 2007 (the “March 13,  2007 Form 8-K”)). |
| 10.36*       |       | Second Amended and Restated Loan and Security  Agreement, dated March 13, 2007, among Mothers Work, Inc. and Cave Springs,  Inc., each as a Borrower, and Mothers Work Canada, Inc., as a Guarantor, and  Bank of America, N.A, as the Lender (Exhibit 10.2 to the March 13, 2007  Form 8-K).                                                                                                                                                                                      |
| 31.1         |       | Certification of the Chief Executive Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                           |

 

28

----

 
| 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. |

 

----

*                    Incorporatedby reference.

†                     Managementcontract or compensatory plan or arrangement.

29

----

**Signatures**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                     |   | MOTHERS WORK, INC.                                        |       |
|---------------------|--------|-----------------------------------------------------------|------------|
|                |   |                                                      |       |
| Date:  May 10, 2007 | By:    | **/s/ DAN W. MATTHIAS**                                   | ** ** | ** ** |
|                |   | Dan W. Matthias                                           | * *   |
|                |   | *Chairman of the Board and  Chief Executive Officer*      | * *   |
|                |   |                                                      | * *   |
|                |   |                                                      |       |
| Date:  May 10, 2007 | By:    | **/s/ EDWARD M. KRELL**                                   | ** ** | ** ** |
|                |   | Edward M. Krell                                           | * *   |
|                |   | *Executive Vice President—**Chief Financial Officer* | * *   |

 

30

----

**INDEX OF EXHIBITS FILED WITH**

**FORM 10-Q OF MOTHERS WORK, INC.**

**FOR THEQUARTER ENDED MARCH 31, 2007**
| Exhibit  No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.30*† |       | Management Incentive Program (effective as of  December 13, 2006) (Exhibit 10.1 to the Company’s Current Report on Form 8-K  dated December 13, 2006).                                                                                                                                                                                                                                                                                                                             |
| 10.31*† |       | Second Amended and Restated Employment Agreement  with Rebecca C. Matthias dated March 2, 2007 (Exhibit 10.1 to the Company’s  Current Report on Form 8-K dated March 2, 2007 (the “March 2, 2007  Form 8-K”)).                                                                                                                                                                                                                                                     |
| 10.32*† |       | Second Amended and Restated Employment Agreement  with Dan W. Matthias dated March 2, 2007 (Exhibit 10.2 to the March 2, 2007  Form 8-K).                                                                                                                                                                                                                                                                                                                                          |
| 10.33†  |       | Supplemental Retirement Agreement with Rebecca C.  Matthias dated March 2, 2007.                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.34†  |       | Supplemental Retirement Agreement with Dan W.  Matthias dated March 2, 2007.                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.35*       |       | Term Loan and Security Agreement, dated March 13,  2007, among Mothers Work, Inc. and Cave Springs, Inc., each as a Borrower,  and Mothers Work Canada, Inc., as a Guarantor, and Bank of America, N.A, as  Term Administrative Agent and Term Collateral Agent, and Banc of America  Securities LLC, as Sole Lead Arranger and Sole Book Runner (Exhibit 10.1 to  the Company’s Current Report on Form 8-K dated March 13, 2007 (the “March 13,  2007 Form 8-K”)). |
| 10.36*       |       | Second Amended and Restated Loan and Security  Agreement, dated March 13, 2007, among Mothers Work, Inc. and Cave Springs,  Inc., each as a Borrower, and Mothers Work Canada, Inc., as a Guarantor, and  Bank of America, N.A, as the Lender (Exhibit 10.2 to the March 13, 2007  Form 8-K).                                                                                                                                                                                      |
| 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.                                                                                                                                                                                                                                                                                             |

 

----

*                    Incorporatedby reference.

†                     Managementcontract or compensatory plan or arrangement.

31

----