**United StatesSecurities and Exchange Commission**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                                                 | ** ** | **Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**   |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|
| ** **                                                 | ** ** | ** **                                                                                          |
| **For the quarterly period ended  December 31, 2004** |
| ** **                                                 | ** ** | ** **                                                                                          |
| **or**                                                     |
| ** **                                                 | ** ** | ** **                                                                                          |
| **o**                                                      | ** ** | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934** |

 

**For the transition period from           to          **

 

**Commission file number 0-21196**

 

**MOTHERS WORK, INC.**

(Exact name of registrant asspecified 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 area code **(215) 873-2200**

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yesý No o

 

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

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 

Common Stock, $.01 par value —5,236,515 shares outstanding as of February 3, 2005

 

 

----

 

**MOTHERS WORK, INC. ANDSUBSIDIARIES**

**INDEX**

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

 

2

----

 

**PART I.  FINANCIALINFORMATION**

 

**Item 1.  FinancialStatements**

 

**MOTHERS WORK, INC. ANDSUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

(in thousands, except share andper share amounts)

(unaudited)

 
| ** **                                                                                                                        | ** ** | **December 31, 2004** | ** ** | **September 30, 2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                        | ** ** | ** **                 | ** ** | ** **                       | ** ** |
| **ASSETS**                                                                                                                        |       |                       |       |                             |       |
| Current Assets:                                                                                                                   |       |                       |       |                             |       |
| Cash and cash equivalents                                                                                                         |       | $                          | 14,691     |                             | $          | 8,467 |   |
| Short-term investments                                                                                                            |       | 2,500                      |       | 6,400                            |       |
| Trade receivables, net                                                                                                            |       | 4,679                      |       | 4,382                            |       |
| Inventories                                                                                                                       |       | 98,113                     |       | 92,743                           |       |
| Deferred income taxes                                                                                                             |       | 4,705                      |       | 4,660                            |       |
| Prepaid expenses and other  current assets                                                                                        |       | 4,147                      |       | 5,744                            |       |
| Total Current Assets                                                                                                              |       | 128,835                    |       | 122,396                          |       |
| Property, Plant and Equipment,  net                                                                                               |       | 63,423                     |       | 60,288                           |       |
| Assets Held for Sale                                                                                                              |       | 1,200                      |       | 1,200                            |       |
| Other Assets:                                                                                                                     |       |                       |       |                             |       |
| Goodwill                                                                                                                          |       | 50,389                     |       | 50,389                           |       |
| Deferred financing costs, net  of accumulated amortization of $1,402 and $1,267                                                   |       | 4,116                      |       | 3,665                            |       |
| Other intangible assets, net of  accumulated amortization of $2,487 and $2,476                                                    |       | 895                        |       | 946                              |       |
| Deferred income taxes                                                                                                             |       | 11,504                     |       | 11,504                           |       |
| Other non-current assets                                                                                                          |       | 567                        |       | 995                              |       |
| Total Other Assets                                                                                                                |       | 67,471                     |       | 67,499                           |       |
| Total Assets                                                                                                                      |       | $                          | 260,929    |                             | $          | 251,383 |   |
| ** **                                                                                                                        |       |                       |       |                             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                     |       |                       |       |                             |       |
| Current Liabilities:                                                                                                              |       |                       |       |                             |       |
| Line of credit borrowings                                                                                                         |       | $                          | —     |                             | $          | — |   |
| Current portion of long-term  debt                                                                                                |       | 728                        |       | 288                              |       |
| Accounts payable                                                                                                                  |       | 23,145                     |       | 19,779                           |       |
| Accrued expenses and other  current liabilities                                                                                   |       | 35,251                     |       | 30,561                           |       |
| Total Current Liabilities                                                                                                         |       | 59,124                     |       | 50,628                           |       |
| Long-Term Debt                                                                                                                    |       | 128,585                    |       | 127,629                          |       |
| Deferred Rent and Other Non-Current  Liabilities                                                                                  |       | 6,733                      |       | 6,856                            |       |
| Total Liabilities                                                                                                                 |       | 194,442                    |       | 185,113                          |       |
|                                                                                                                              |       |                       |       |                             |       |
| 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, 5,226,875 and 5,207,081 shares issued and  outstanding, respectively |       | 52                         |       | 52                               |       |
| Additional paid-in capital                                                                                                        |       | 62,725                     |       | 62,565                           |       |
| Retained earnings                                                                                                                 |       | 3,710                      |       | 3,653                            |       |
| Total Stockholders’ Equity                                                                                                   |       | 66,487                     |       | 66,270                           |       |
| Total Liabilities and  Stockholders’ Equity                                                                                  |       | $                          | 260,929    |                             | $          | 251,383 |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

3

----

 

**MOTHERS WORK, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

(in thousands, except per shareamounts)

(unaudited)

 
| ** **                                    | ** ** | **Three Months Ended  December 31,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                    | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
| Net sales                                     |       | $                                         | 133,619    |   | $ | 131,695 |   |
| Cost of goods sold                            |       | 63,206                                    |       | 61,665 |   |
| Gross profit                                  |       | 70,413                                    |       | 70,030 |   |
| Selling, general and administrative  expenses |       | 66,563                                    |       | 62,915 |   |
| Operating income                              |       | 3,850                                     |       | 7,115 |   |
| Interest expense, net                         |       | (3,755                                    | )          | (3,691 | ) |
| Income before income taxes                    |       | 95                                        |       | 3,424 |   |
| Income tax provision                          |       | 38                                        |       | 1,370 |   |
| Net income                                    |       | $                                         | 57         |   | $ | 2,054 |   |
|                                          |       |                                      |       |   |   |
| Net income per share—Basic               |       | $                                         | 0.01       |   | $ | 0.39 |   |
| Average shares outstanding—Basic         |       | 5,216                                     |       | 5,234 |   |
| Net income per share—Diluted             |       | $                                         | 0.01       |   | $ | 0.37 |   |
| Average shares outstanding—Diluted       |       | 5,354                                     |       | 5,559 |   |
|                                               |            |                                           |            |  |  |  |  |  |

 

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

 

4

----

 

**MOTHERS WORK, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

(in thousands)

(unaudited)

 
| ** **                                                                         | ** ** | **Three Months Ended  December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                         | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
| **Cash Flows from Operating  Activities**                                          |       |                                      |       |   |   |
| Net income                                                                         |       | $                                         | 57         |   | $ | 2,054 |   |
| Adjustments to reconcile net  income to net cash provided by operating activities: |       |                                      |       |   |   |
| Depreciation and amortization                                                      |       | 2,623                                     |       | 2,487 |   |
| Loss on impairment of  long-lived assets                                           |       | 458                                       |       | 142 |   |
| Loss on disposal of assets                                                         |       | 263                                       |       | 77 |   |
| Accretion of discount on senior  notes                                             |       | 40                                        |       | 36 |   |
| Deferred income tax benefit                                                        |       | (45                                       | )          | (38 | ) |
| Tax benefit of stock option  exercises                                             |       | 45                                        |       | 38 |   |
| Amortization of deferred  financing costs                                          |       | 135                                       |       | 99 |   |
| Provision for deferred rent                                                        |       | 243                                       |       | 159 |   |
| Changes in assets and  liabilities:                                                |       |                                      |       |   |   |
| Decrease (increase) in —                                                      |       |                                      |       |   |   |
| Trade receivables                                                                  |       | (297                                      | )          | (85 | ) |
| Inventories                                                                        |       | (5,370                                    | )          | 3,727 |   |
| Prepaid expenses and other  current assets                                         |       | 2,249                                     |       | 787 |   |
| Increase (decrease) in —                                                      |       |                                      |       |   |   |
| Accounts payable, accrued  expenses and other current liabilities                  |       | 5,089                                     |       | (1,688 | ) |
| Net cash provided by operating  activities                                         |       | 5,490                                     |       | 7,795 |   |
| **Cash Flows from Investing  Activities**                                          |       |                                      |       |   |   |
| Proceeds from sale of  short-term investments                                      |       | 6,400                                     |       | 100 |   |
| Purchase of short-term  investments                                                |       | (2,500                                    | )          | (8,050 | ) |
| Capital expenditures                                                               |       | (5,354                                    | )          | (3,635 | ) |
| Purchase of intangible assets                                                      |       | (5                                        | )          | (8 | ) |
| Net cash used in investing  activities                                             |       | (1,459                                    | )          | (11,593 | ) |
|                                                                               |       |                                      |       |   |   |
| **Cash Flows from Financing  Activities**                                          |       |                                      |       |   |   |
| Increase in cash overdrafts                                                        |       | 3,120                                     |       | 2,329 |   |
| Repayment of long-term debt                                                        |       | (83                                       | )          | (38 | ) |
| Repurchase of common stock                                                         |       | —                                    |       | (392 | ) |
| Payout of redeemed Series A  Preferred Stock                                       |       | (373                                      | )          | (324 | ) |
| Deferred financing costs                                                           |       | (586                                      | )          | — |   |
| Proceeds from exercise of stock  options and warrants                              |       | 115                                       |       | 69 |   |
| Net cash provided by financing  activities                                         |       | 2,193                                     |       | 1,644 |   |
| **Net Increase (Decrease) in  Cash and Cash Equivalents**                          |       | 6,224                                     |       | (2,154 | ) |
| **Cash and Cash Equivalents,  Beginning of Period**                                |       | 8,467                                     |       | 15,731 |   |
| **Cash and Cash Equivalents,  End of Period**                                      |       | $                                         | 14,691     |   | $ | 13,577 |   |
|                                                                               |       |                                      |       |   |   |
| Supplemental Disclosures of  Cash Flow Information:                                |       |                                      |       |   |   |
| Cash paid for interest                                                             |       | $                                         | 62         |   | $ | 212 |   |
| Cash paid for income taxes                                                         |       | $                                         | 137        |   | $ | 2,188 |   |
| Supplemental Disclosures of  Non-Cash Investing and Financing Activities:          |       |                                      |       |   |   |
| Purchase of equipment under  capital lease obligations                             |       | $                                         | 1,438      |   | $ | — |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

5

----

 

**MOTHERS WORK, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**December 31, 2004**

(unaudited)

 

**1.     BASIS OF FINANCIAL STATEMENT PRESENTATION**

 

The accompanying unauditedconsolidated financial statements have been prepared in accordance with therequirements for Form 10-Q and Article 10 of Regulation S-X and,accordingly, certain information and footnote disclosures have been condensedor omitted.  Reference is made to theAnnual Report on Form 10-K as of and for the year ended September 30,2004 for Mothers Work, Inc. and subsidiaries (the “Company” or “MothersWork”) as filed with the Securities and Exchange Commission, for additionaldisclosures including a summary of the Company’s accounting policies.

 

In the opinion of management, theconsolidated financial statements contain all adjustments, consisting of normalrecurring adjustments, necessary to present fairly the consolidated financialposition of the Company for the periods presented. Since the Company’soperations are seasonal, the interim operating results of the Company may notbe indicative of operating results for the full year.

 

The Company operates on a fiscal year endingSeptember 30 of each year.  Allreferences to fiscal years of the Company refer to fiscal years ended onSeptember 30 in those years.  Forexample, the Company’s “fiscal 2005” will end on September 30, 2005.  Certain reclassifications havebeen made to the prior year consolidated financial statements to conform to thecurrent year presentation.

 

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

 

The Company follows the Financial Accounting Standards Board (“FASB”)Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings PerShare.”  Basic earnings per share (“BasicEPS”) is computed by dividing net income by the weighted average number ofcommon shares outstanding.  Diluted earnings per share (“Diluted EPS”) iscomputed by dividing net income by the weighted average number of common sharesoutstanding, after giving effect to the potential dilution from the exercise ofsecurities, such as stock options and warrants, into shares of common stock asif those securities were exercised.

 

The following table summarizes the Basic EPSand Diluted EPS calculation (in thousands, except per share amounts):

 
| ** **                                                                              | ** ** | **Three Months Ended  December 31, 2004** | ** ** | **Three Months Ended  December 31, 2003** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                              | ** ** | **Net  Income**                                     | ** ** | **Shares**                                          | ** ** | **EPS** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **EPS** | ** ** |
| Basic EPS                                                                               |       | $                                                   | 57         |                                                | 5,216      |   | $ | 0.01 |   | $ | 2,054 |   | 5,234 |   | $ | 0.39 |   |
| Incremental shares from the  assumed exercise of outstanding stock options and warrants |       | —                                              |       | 138                                                 |       |   |   | — |   | 325 |   |   |   |
|                                                                                    |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Diluted EPS                                                                             |       | $                                                   | 57         |                                                | 5,354      |   | $ | 0.01 |   | $ | 2,054 |   | 5,559 |   | $ | 0.37 |   |

 

Options to purchase 469,250 and272,250 shares were outstanding as of December 31, 2004 and 2003,respectively, but were not included in the computation of Diluted EPS as theireffect would have been antidilutive. These options could potentially dilute EPSin the future.

 

On March 5, 2003, the Board of Directorsapproved a share repurchase program under which the Company may repurchase upto $10,000,000 of its outstanding common stock from time to time in privatetransactions or on the open market through March 4, 2005, unlessextended.  As of December 31, 2004, the Company had repurchased andretired 142,269 shares in the aggregate at a total cost of $3,243,000, for anaverage cost of $22.79 per share.  No repurchaseswere made during the quarter ended December 31, 2004. Theindenture governing the Company’s $125,000,000of 11 1⁄4% senior notes due 2010 (the “New Senior Notes”) and the terms ofits credit facility contain restrictions that place limits on certain paymentsby the Company, including payments to repurchase shares of our common stock.The repurchases of common stock have been made in compliance with allrestrictions under the indenture governing the New Senior Notes and the termsof both the Company’s former and new credit facilities.

 

6

----

 

**3.     STOCK-BASED COMPENSATION**

 

The Company follows the intrinsicvalue method of accounting for stock-based employee compensation in accordancewith Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations (see Note 7). The followingtables illustrate the effect on net income and earnings per share if theCompany had accounted for its stock option plans using the fair value method ofaccounting under SFAS No. 123, “Accounting for Stock-Based Compensation,” asamended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transitionand Disclosure” (in thousands, except per share amounts):

 
| ** **                  | ** **                                                                                                               | **Three Months Ended  December 31,** | ** ** |
|-----------------------------|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|------------|
| ** **                  | ** **                                                                                                               | **2004**                                  | ** ** | **2003** | ** ** |
| Net income, as reported     |                                                                                                                     | $                                         | 57         |   | $ | 2,054 |   |
| Deduct:                     | Total stock-based employee compensation expense determined  under the fair value based method for all grants, net of tax |                                      | (727       | ) | (482 | ) |
| Pro forma net income (loss) |                                                                                                                     | $                                         | (670       | ) | $ | 1,572 |   |
|                        |                                                                                                                     |                                      |       |   |   |
| Basic EPS:                  |                                                                                                                     |                                      |       |   |   |
| As reported                 |                                                                                                                     | $                                         | 0.01       |   | $ | 0.39 |   |
| Pro forma net income (loss) |                                                                                                                     | $                                         | (0.13      | ) | $ | 0.30 |   |
|                        |                                                                                                                     |                                      |       |   |   |
| Diluted EPS:                |                                                                                                                     |                                      |       |   |   |
| As reported                 |                                                                                                                     | $                                         | 0.01       |   | $ | 0.37 |   |
| Pro forma net income (loss) |                                                                                                                     | $                                         | (0.13      | ) | $ | 0.29 |   |
|                             |                                                                                                                          |                                           |            |  |  |  |  |  |

 

In December 2004, the FASB revised SFASNo. 123, by issuing SFAS 123(R), “Share-Based Payment”-see Note 7.

 

Pro forma Diluted EPS is computed by dividing pro forma net income(loss) by the pro forma weighted average number of shares outstanding aftergiving effect to the potential dilution from the exercise of securities, suchas stock options, into shares of common stock as if those securities wereexercised as of the beginning of the period presented.

 

During the three months ended December 31, 2004 and 2003, a totalof 273,550 and 150,200 stock options, respectively, were granted to certainemployees and non-employee directors for the purchase of the Company’s commonstock at prices not less than the fair market value of the Company’s commonstock on the date of grant.

 

The weighted average fair value of theoptions granted during the three months ended December 31,****2004 and 2003 is estimated at $8.60 and $16.04 per share,respectively. The weighted average fair value is calculated based on the dateof grant using the Black-Scholes option-pricing model with the followingweighted average assumptions:

 
| ** **                | ** ** | **Three Months Ended  December 31,** | ** ** |
|---------------------------|------------|-------------------------------------------|------------|
| ** **                | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
| Dividend yield            |       | none                                      |       | none |   |
| Expected price volatility |       | 59.8                                      | %          | 62.7 | % |
| Risk-free interest rates  |       | 4.0                                       | %          | 3.3 | % |
| Expected lives            |       | 8.1 years                                 |       | 8.3 years |   |

 

**4.     INVENTORIES**

 

Inventories were comprised of the following(in thousands):

 
| ** **       | ** ** | **December 31, 2004** | ** ** | **September 30, 2004** | ** ** |
|------------------|------------|----------------------------|------------|-----------------------------|------------|
| Finished goods   |       | $                          | 86,186     |                        | $          | 81,428 |   |
| Work-in-progress |       | 3,854                      |       | 3,317                       |       |
| Raw materials    |       | 8,073                      |       | 7,998                       |       |
|             |       | $                          | 98,113     |                        | $          | 92,743 |   |

 

7

----

 

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

 

Accrued expenses and other currentliabilities were comprised of the following (in thousands):

 
| ** **                                                   | ** ** | **December 31, 2004** | ** ** | **September 30, 2004** | ** ** |
|--------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| Salaries, wages, and employee  benefits                      |       | $                          | 7,461      |                        | $          | 8,944 |   |
| Income taxes payable                                         |       | 1,245                      |       | 1,344                       |       |
| Interest                                                     |       | 5,896                      |       | 2,358                       |       |
| Sales taxes                                                  |       | 2,977                      |       | 2,458                       |       |
| Insurance                                                    |       | 2,866                      |       | 2,425                       |       |
| Rent                                                         |       | 703                        |       | 608                         |       |
| Audit and legal                                              |       | 1,658                      |       | 1,671                       |       |
| Reserves recorded in the  iMaternity acquisition (Note 6)    |       | 624                        |       | 850                         |       |
| Remaining payout for redemption  of Series A Preferred Stock |       | 679                        |       | 1,052                       |       |
| Accrued store construction  costs                            |       | 919                        |       | 1,514                       |       |
| Gift certificates and store  credits                         |       | 5,131                      |       | 2,586                       |       |
| Other                                                        |       | 5,092                      |       | 4,751                       |       |
|                                                         |       | $                          | 35,251     |                        | $          | 30,561 |   |

 

Interest payments on the New SeniorNotes are made semiannually on February 1st and August 1st.

 

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

 

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

 

As of December 31, 2004, the remaining iMaternity acquisition reservesconsisted of: (a) lease termination fees of $108,000 related to planned storeclosures; (b) a severance reserve outstanding of $350,000 that reflects theremainder of a non-compete and severance arrangement with a former executive ofiMaternity that is payable ratably on a monthly basis through September 2006;and (c) the reserve for exit costs of $166,000 that is principally for theexpected costs related to the Costa Rican facilities.

 

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

 
| ** **             | ** ** | **Balance as of  September 30,  2004** | ** ** | **First Quarter  Fiscal 2005 Charges** | ** ** | **Balance as of  December 31, 2004** | ** ** |
|------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------|------------|
| Lease termination fees |       | $                                           | 249        |                                   | $          | (141                                      | )          | $ | 108 |   |
| Severance              |       | 400                                         |       | (50                                    | )          | 350                                       |       |
| Exit and other costs   |       | 201                                         |       | (35                                    | )          | 166                                       |       |
|                   |       | $                                           | 850        |                                   | $          | (226                                      | )          | $ | 624 |   |

 

**7.     NEW ACCOUNTING PRONOUNCEMENTS**

 

***SFAS No. 123(R****)**.******* In December 2004, the FASB revised SFASNo. 123 by issuing SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R)replaces SFAS No. 123 and APB Opinion No. 25 and establishes standards for theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods and services.  SFAS No. 123(R)requires that the compensation cost relating to share-based paymenttransactions be recognized in financial statements, measured by the fair valueof the equity or liability instruments issued, and is effective as of the firstreporting period that begins after June 15, 2005 for public entities that donot file as small business issuers.  TheCompany has previously disclosed the pro forma impact on its earnings ofadopting the fair value method of accounting for stock based compensation underSFAS No. 123 in notes to its consolidated financial statements for the yearsended September 30, 2002, 2003 and 2004 and the pro forma impact on the threemonths ended December 31, 2004 is shown in Note 3 above.  The fair value-based method of SFAS No. 123is similar in most respects to the fair value-based method under SFAS No.123(R), however, certain transition rules of SFAS No. 123(R) may affect theimpact on the Company’s consolidated financial position or results ofoperations.  Such impact, if any, on theCompany’s consolidated financial position or results of operations has not yetbeen determined.

 

8

----

 

**8.     GUARANTOR SUBSIDIARIES**

 

Pursuant to the terms of theindenture relating to the New Senior Notes, each of the domestic subsidiariesof Mothers Work, Inc. (the “Guarantor Subsidiaries”) has jointly and severallyprovided an unconditional guarantee of the obligations of Mothers Work withrespect to the New Senior Notes. There are no restrictions on any of the assetsof the Guarantor Subsidiaries which would limit their ability to transfer fundsto Mothers Work in the form of loans, advances or cash dividends, except asprovided by applicable law. None of the Company’s foreign subsidiaries (the “Non-GuarantorSubsidiaries”) have guaranteed the New Senior Notes. The condensedconsolidating financial information for the Company, the GuarantorSubsidiaries, and the Non–Guarantor Subsidiaries as of and for the three monthsended December 31, 2004 as presented below has been prepared from thebooks and records maintained by the Guarantor Subsidiaries and the Company. Thecondensed financial information may not necessarily be indicative of theresults of operations or financial position had the Guarantor Subsidiariesoperated as independent entities. Certain intercompany revenues and expensesincluded in the subsidiary records are eliminated in consolidation.  As a result of this activity, an amount dueto/due from parent will exist at any time.

 

9

----

 

**Mothers Work, Inc.**

**Condensed Consolidating BalanceSheet**

**December 31, 2004**

(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                         |       | $                                   | 14,110     |                        | $          | 38                                                     |       | $                               | 543        |                           | $          | — |   | $ | 14,691 |   |
| Short-term investments                            |       | 2,500                               |       | —                      |       | —                                                 |       | —                          |       | 2,500                          |       |
| Trade receivables                                 |       | 4,616                               |       | —                      |       | 63                                                     |       | —                          |       | 4,679                          |       |
| Inventories                                       |       | 96,315                              |       | —                      |       | 1,798                                                  |       | —                          |       | 98,113                         |       |
| Deferred income taxes                             |       | 4,705                               |       | —                      |       | —                                                 |       | —                          |       | 4,705                          |       |
| Prepaid expenses and other  current assets        |       | 4,147                               |       | —                      |       | —                                                 |       | —                          |       | 4,147                          |       |
| Total Current Assets                              |       | 126,393                             |       | 38                          |       | 2,404                                                  |       | —                          |       | 128,835                        |       |
| Property, Plant and Equipment,  net               |       | 61,622                              |       | —                      |       | 1,801                                                  |       | —                          |       | 63,423                         |       |
| Assets Held for Sale                              |       | —                              |       | —                      |       | 1,200                                                  |       | —                          |       | 1,200                          |       |
| Other Assets                                      |       | 67,468                              |       | 3                           |       | —                                                 |       | —                          |       | 67,471                         |       |
| Investments in and Advances to  (from) Affiliates |       | 1,412                               |       | 218,807                     |       | (4,197                                                 | )          | (216,022                        | )          | —                         |       |
| Total Assets                                      |       | $                                   | 256,895    |                        | $          | 218,848                                                |       | $                               | 1,208      |                           | $          | (216,022 | ) | $ | 260,929 |   |
|                                              |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**    |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Current Liabilities:                              |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Line of credit borrowings                         |       | $                                   | —     |                        | $          | —                                                 |       | $                               | —     |                           | $          | — |   | $ | — |   |
| Current portion of long-term  debt                |       | 728                                 |       | —                      |       | —                                                 |       | —                          |       | 728                            |       |
| Accounts payable                                  |       | 23,119                              |       | 26                          |       | —                                                 |       | —                          |       | 23,145                         |       |
| Accrued expenses and other  current liabilities   |       | 31,368                              |       | 3,487                       |       | 396                                                    |       | —                          |       | 35,251                         |       |
| Total Current Liabilities                         |       | 55,215                              |       | 3,513                       |       | 396                                                    |       | —                          |       | 59,124                         |       |
| Long-Term Debt                                    |       | 128,585                             |       | —                      |       | —                                                 |       | —                          |       | 128,585                        |       |
| Deferred Rent                                     |       | 6,608                               |       | —                      |       | 125                                                    |       | —                          |       | 6,733                          |       |
| Total Liabilities                                 |       | 190,408                             |       | 3,513                       |       | 521                                                    |       | —                          |       | 194,422                        |       |
|                                              |       |                                |       |                        |       |                                                   |       |                            |       |                           |       |
| Total Stockholders’ Equity                   |       | 66,487                              |       | 215,335                     |       | 687                                                    |       | (216,022                        | )          | 66,487                         |       |
| Total Liabilities and  Stockholders’ Equity  |       | $                                   | 256,895    |                        | $          | 218,848                                                |       | $                               | 1,208      |                           | $          | (216,022 | ) | $ | 260,929 |   |
|                                                   |            |                                     |            |                             |            |                                                        |            |                                 |            |                                |            |  |  |  |  |  |  |  |  |  |

 

10

----

 

**Mothers Work, Inc.**

**Consolidating Statement ofOperations**

**For The Three Months EndedDecember 31, 2004**

(in thousands)

(unaudited)

 
| ** **                                    | ** ** | **Mothers Work  (Parent Company)** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries  (Foreign  Companies)** | ** ** | **Consolidating  Eliminations** | ** ** | **Mothers Work  Consolidated** | ** ** |
|-----------------------------------------------|------------|------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| Net sales                                     |       | $                                  | 130,683    |                        | $          | 7,036                                                 |       | $                               | 2,936      |                           | $          | (7,036 | ) | $ | 133,619 |   |
| Cost of goods sold                            |       | 61,888                             |       | —                      |       | 1,318                                                 |       | —                          |       | 63,206                         |       |
| Gross profit                                  |       | 68,795                             |       | 7,036                       |       | 1,618                                                 |       | (7,036                          | )          | 70,413                         |       |
| Selling, general and  administrative expenses |       | 72,214                             |       | 63                          |       | 1,322                                                 |       | (7,036                          | )          | 66,563                         |       |
| Operating income (loss)                       |       | (3,419                             | )          | 6,973                       |       | 296                                                   |       | —                          |       | 3,850                          |       |
| Interest income (expense), net                |       | (6,745                             | )          | 2,990                       |       | —                                                |       | —                          |       | (3,755                         | )          |
| Equity in earnings of  subsidiaries           |       | 10,259                             |       | —                      |       | —                                                |       | (10,259                         | )          | —                         |       |
| Income before income taxes                    |       | 95                                 |       | 9,963                       |       | 296                                                   |       | (10,259                         | )          | 95                             |       |
| Income tax provision                          |       | 38                                 |       | 3,487                       |       | 118                                                   |       | (3,605                          | )          | 38                             |       |
| Net income                                    |       | $                                  | 57         |                        | $          | 6,476                                                 |       | $                               | 178        |                           | $          | (6,654 | ) | $ | 57 |   |

 

11

----

 

**Mothers Work, Inc.**

**Consolidating Cash FlowStatement**

**For The Three Months EndedDecember 31, 2004**

(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                                                                         |       | $                                  | 57         |                        | $          | 6,476                                                 |       | $                               | 178        |                           | $          | (6,654 | ) | $ | 57 |   |
| Adjustments to reconcile net  income to net cash provided by operating activities: |       |                               |       |                        |       |                                                  |       |                            |       |                           |       |
| Depreciation and amortization                                                      |       | 2,568                              |       | —                      |       | 55                                                    |       | —                          |       | 2,623                          |       |
| Loss on impairment of  long-lived assets                                           |       | 458                                |       | —                      |       | —                                                |       | —                          |       | 458                            |       |
| Loss on disposal of assets                                                         |       | 263                                |       | —                      |       | —                                                |       | —                          |       | 263                            |       |
| Accretion of discount on senior  notes                                             |       | 40                                 |       | —                      |       | —                                                |       | —                          |       | 40                             |       |
| Deferred income tax benefit                                                        |       | (45                                | )          | —                      |       | —                                                |       | —                          |       | (45                            | )          |
| Tax benefit of stock option  exercises                                             |       | 45                                 |       | —                      |       | —                                                |       | —                          |       | 45                             |       |
| Amortization of deferred financing  costs                                          |       | 135                                |       | —                      |       | —                                                |       | —                          |       | 135                            |       |
| Provision for deferred rent                                                        |       | 216                                |       | —                      |       | 27                                                    |       | —                          |       | 243                            |       |
| Changes in assets and  liabilities:                                                |       |                               |       |                        |       |                                                  |       |                            |       |                           |       |
| Decrease (increase) in—                                                       |       |                               |       |                        |       |                                                  |       |                            |       |                           |       |
| Trade receivables                                                                  |       | (279                               | )          | —                      |       | (18                                                   | )          | —                          |       | (297                           | )          |
| Inventories                                                                        |       | (5,286                             | )          | —                      |       | (84                                                   | )          | —                          |       | (5,370                         | )          |
| Prepaid expenses and other  current assets                                         |       | 2,249                              |       | —                      |       | —                                                |       | —                          |       | 2,249                          |       |
| Investments in and advances to  (from) affiliates                                  |       | (2,669                             | )          | (3,657                      | )          | (328                                                  | )          | 6,654                           |       | —                         |       |
| Increase (decrease) in—                                                       |       |                               |       |                        |       |                                                  |       |                            |       |                           |       |
| Accounts payable, accrued expenses  and other current liabilities                  |       | 7,824                              |       | (2,825                      | )          | 90                                                    |       | —                          |       | 5,089                          |       |
| Net cash provided by operating  activities                                         |       | 5,576                              |       | (6                          | )          | (80                                                   | )          | —                          |       | 5,490                          |       |
| **Cash Flows from Investing  Activities:**                                         |       |                               |       |                        |       |                                                  |       |                            |       |                           |       |
| Purchase of short-term  investments                                                |       | 6,400                              |       | —                      |       | —                                                |       | —                          |       | 6,400                          |       |
| Proceeds of sale from short-term  investments                                      |       | (2,500                             | )          | —                      |       | —                                                |       | —                          |       | (2,500                         | )          |
| Capital expenditures                                                               |       | (4,980                             | )          | —                      |       | (374                                                  | )          | —                          |       | (5,354                         | )          |
| Purchase of intangible assets                                                      |       | (5                                 | )          | —                      |       | —                                                |       | —                          |       | (5                             | )          |
| Net cash used in investing  activities                                             |       | (1,085                             | )          | —                      |       | (374                                                  | )          | —                          |       | (1,459                         | )          |
| **Cash Flows from Financing  Activities:**                                         |       |                               |       |                        |       |                                                  |       |                            |       |                           |       |
| Increase (decrease) in line of  credit borrowings                                  |       | —                             |       | —                      |       | —                                                |       | —                          |       | —                         |       |
| Increase in cash overdrafts                                                        |       | 3,120                              |       | —                      |       | —                                                |       | —                          |       | 3,120                          |       |
| Repayment of long-term debt                                                        |       | (83                                | )          | —                      |       | —                                                |       | —                          |       | (83                            | )          |
| Payout for redeemed Series A  Preferred Stock                                      |       | (373                               | )          | —                      |       | —                                                |       | —                          |       | (373                           | )          |
| Deferred financing costs                                                           |       | (586                               | )          |                        |       |                                                  |       |                            |       | (586                           | )          |
| Proceeds from exercise of stock  options                                           |       | 115                                |       | —                      |       | —                                                |       | —                          |       | 115                            |       |
| Net cash provided by financing  activities                                         |       | 2,193                              |       | —                      |       | —                                                |       | —                          |       | 2,193                          |       |
| **Net Increase (Decrease) in  Cash and Cash Equivalents**                          |       | 6,684                              |       | (6                          | )          | (454                                                  | )          | —                          |       | 6,224                          |       |
| **Cash and Cash Equivalents,  Beginning of Period**                                |       | 7,426                              |       | 44                          |       | 997                                                   |       | —                          |       | 8,467                          |       |
| **Cash and Cash Equivalents,  End of Period**                                      |       | $                                  | 14,110     |                        | $          | 38                                                    |       | $                               | 543        |                           | $          | — |   | $ | 14,691 |   |

 

12

----

 

**9.****             COMMITMENTS AND CONTINGENCIES**

 

On January 12, 2005, a purported class actionwas filed against the Company in the United States District Court for theDistrict of Connecticut.  The complaintalleges that, under applicable federal and state law, certain former andcurrent employees should have received overtime compensation.  The plaintiffs in this case are seekingunspecified actual damages, penalties and attorneys’ fees. At this stage inthese proceedings, the Company is unable to predict the outcome of this case,which the Company is vigorously defending. The Company has undertaken preliminary steps to mediate certain of theseclaims.

 

In addition, fromtime to time, the Company is named as a defendant in legal actions arising fromits normal business activities. Although the amount of any liability that couldarise with respect to currently pending actions, including the matterspecifically described above, cannot be accurately predicted, the Company doesnot believe that the resolution of any pending action will have a materialadverse effect on its financial position or results of operations.

 

13

----

 

**Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

**Results of Operations**

 

The following tables set forth certain operating data as a percentageof net sales and as a percentage change for the three months endedDecember 31:

 
| ** **                                    | ** ** | **% of Net Sales (1)** | ** ** | **% Increase (Decrease)** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|---------------------------|------------|
| ** **                                    | ** ** | **2004**               | ** ** | **2003**                  | ** ** | **2004 vs. 2003** | ** ** |
| Net sales                                     |       | 100.0                  | %          |                      | 100.0      | % |   | 1.5 | % |   |
| Cost of goods sold                            |       | 47.3                   |       |                      | 46.8       |   |   | 2.5 |   |   |
| Gross profit                                  |       | 52.7                   |       |                      | 53.2       |   |   | 0.5 |   |   |
| Selling, general and  administrative expenses |       | 49.8                   |       |                      | 47.8       |   |   | 5.8 |   |   |
| Operating income                              |       | 2.9                    |       |                      | 5.4        |   |   | (45.9 | ) |   |
| Interest expense, net                         |       | 2.8                    |       |                      | 2.8        |   |   | 1.7 |   |   |
| Income before income taxes                    |       | 0.1                    |       |                      | 2.6        |   |   | (97.2 | ) |   |
| Income tax provision                          |       | 0.0                    |       |                      | 1.0        |   |   | (97.2 | ) |   |
| Net income                                    |       | 0.0                    | %          |                      | 1.6        | % |   | (97.2 | ) |   |

 

----

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

 

The following table sets forthcertain information concerning the number of our stores and leased departmentsfor the three months ended December 31:

 
| ** **          | ** ** | **2004**   | ** ** | **2003**                | ** ** |
|---------------------|------------|------------|------------|-------------------------|------------|
| ** **          | ** ** | **Stores** | ** ** | **Leased  Departments** | ** ** | **Total Retail Locations** | ** ** | **Stores** | ** ** | **Leased  Departments** | ** ** | **Total Retail Locations** | ** ** |
| Beginning of period |       | 883        |       | 232                     |       | 1,115 |   | 851 |   | 155 |   | 1,006 |   |
| Opened              |       | 12         |       | 1                       |       | 13 |   | 24 |   | 3 |   | 27 |   |
| Closed              |       | (15        | )          | (2                      | )          | (17 | ) | (5 | ) | (1 | ) | (6 | ) |
| End of period       |       | 880        |       | 231                     |       | 1,111 |   | 870 |   | 157 |   | 1,027 |   |

 

Our fiscal year ends on September 30.  All references in this discussion to ourfiscal years refer to the fiscal year ended on September 30 in the yearmentioned.  For example, our “fiscal 2005”will end on September 30, 2005.

 

**Three Months Ended December 31, 2004 and2003**

 

***Net Sales.***  Our netsales for the first quarter of fiscal 2005 increased by 1.5%, or $1.9 million,to $133.6 million from $131.7 million for the first quarter of fiscal2004. The increase in net sales for the quarter was driven by increased retaillocation count, as well as increases in sales from our internet business andmarketing partnerships, partially offset by a decrease in comparable storesales.  Comparable store sales for thefirst quarter of fiscal 2005 decreased by 4.2%, based on 894 locations, versusa comparable store sales decrease of 5.0% during the first quarter of fiscal2004, based on 845 locations.  Thedecrease in comparable store sales in the first quarter of fiscal 2005reflected the continued significant impact on our sales of increasedcompetition in the maternity apparel business.

 

As of December 31, 2004, we operated a total of 880 stores and 1,111total retail locations, compared to 870 stores and 1,027 total retail locationsas of December 31, 2003.  As ofDecember 31, 2004, our store total included 39 multi-brand stores,including 6 Destination Maternity superstores, with the remaining multi-brandstores predominantly under the Mimi Maternity brand.  In comparison, as of December 31, 2003, weoperated 7 multi-brand stores. These multi-brand store figures exclude ourA Pea in the Pod stores, which have traditionally carried a full line ofboth A Pea in the Pod and Mimi Maternity branded merchandise.  During the first quarter of fiscal 2005, weopened 12 stores, including 4 multi-brand stores, and closed 15 stores, with 8of these store closings related to multi-brand store openings, including theopening of 2 Destination Maternity superstores.

 

***Gross Profit.***  Our grossprofit for the first quarter of fiscal 2005 increased by 0.5%, or $0.4 million,to $70.4 million from $70.0 million for the first quarter of fiscal 2004,reflecting the increase in net sales, partially offset by a decrease in

 

14

----

 

 

gross margin.  Gross profit as apercentage of net sales (gross margin) for the first quarter of fiscal 2005decreased by 48 basis points (0.48 percentage points of net sales) to 52.7%from 53.2% for the first quarter of fiscal 2004.  The decrease in grossmargin versus last year primarily reflects the additionalmarkdowns recognized compared to last year, to reduce seasonal and overallinventory levels and to stimulate sales.

 

***Selling, General andAdministrative Expenses.***  Our selling, general andadministrative expenses for the first quarter of fiscal 2005 increased by 5.8%,or $3.6 million, to $66.6 million from $62.9 million for the first quarterof fiscal 2004.  Compared to the firstquarter of fiscal 2004, store rent and related expenses increased by $1.9million, primarily resulting from our new store openings.  As a percentageof net sales, selling, general and administrative expenses increased to 49.8%for the first quarter of fiscal 2005 compared to 47.8% for the first quarter offiscal 2004.  This increase resultedprimarily from an increased store occupancy expense ratio and, to a lesserextent, an increased store payroll expense ratio, each resulting fromthe 4.2% decrease in comparable store sales for the quarter, partially offsetby a lower employee benefits expense ratio. In addition, we incurred chargesrelating to store closings of $0.6 million for the first quarter of fiscal 2005versus $0.3 million for the first quarter of fiscal 2004, and incurredimpairment charges for write-downs of store long-lived assets of $0.5 millionfor the first quarter of fiscal 2005 versus $0.1 million for the first quarterof fiscal 2004.

 

***Operating Income.***  Our operating income for the first quarterof fiscal 2005 decreased by 45.9%, or $3.3 million, to $3.9 million from$7.1 million for the first quarter of fiscal 2004, due to higher selling,general and administrative expenses which more than offset the impact ofincreased sales volume and gross profit. Operating income as a percentage of net sales for the first quarter offiscal 2005 decreased to 2.9% from 5.4% for the first quarter of fiscal 2004due to our increased operating expense ratio and, to a much lesser extent,decreased gross margin.

 

***Interest Expense, Net.***  Our netinterest expense for the first quarter of fiscal 2005 increased by 1.7%, or$0.1 million, to $3.8 million from $3.7 million for the first quarter of fiscal2004.  The increase in net interestexpense for the first quarter of fiscal 2005 reflects decreased interestincome, due to a smaller average balance of cash and short-term investments,and increased amortization expense of deferred financing costs related to ournew credit facility entered into in October, 2004.  During the quarters ended December 31, 2004and 2003, we did not have any direct borrowings under either our former or new creditfacilities.

 

***Income Tax Provision.*** Our effective tax rate was a provision of40.0% for both the first quarter of fiscal 2005 and the first quarter of fiscal2004.  We expect our effective tax rate for the full year fiscal 2005 to be 40.0%, equal toour effective tax rate for the full year fiscal 2004.

 

***Net Income.***  Netincome for the first quarter of fiscal 2005 was $0.1 million, or $0.01 pershare (diluted) compared to $2.1 million, or $0.37 per share (diluted) for thefirst quarter of fiscal 2004, representing a 97.2% decrease in net income and a97.3% decrease in diluted earnings per share.

 

Our average diluted shares outstanding of5,354,000 for the first quarter of fiscal 2005 was 3.7% lower than the5,559,000 average diluted shares outstanding for the first quarter of fiscal2004.  The decrease in average diluted shares outstanding reflects ourrepurchases of shares of our common stock pursuant to our share repurchaseprogram and the reduced dilutive effect of outstanding options and warrants, partiallyoffset by the impact of stock option exercises. As of December 31, 2004, we have repurchased 142,269 shares of ourcommon stock pursuant to our share repurchase program.  We did not repurchase any shares of ourcommon stock during the first quarter of fiscal 2005.

 

**Seasonality**

 

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

 

15

----

 

**Liquidity and Capital Resources**

 

Our cash needs have primarily been for:(i) debt service, (ii) capital expenditures, including leaseholdimprovements, fixtures and equipment for new stores; store relocations andexpansions of our existing stores as well as improvements and new equipment forour distribution and corporate facilities and information systems, and (iii) workingcapital, including inventory to support our new business initiatives and ournew and existing stores.  We havehistorically financed these capital requirements from cash flows fromoperations, borrowings under our credit facility or available cash balances.

 

Cash and cash equivalents increased by $6.2million during the first quarter of fiscal 2005 compared to a decrease of $2.2million for the first quarter of fiscal 2004.  Cash provided by operationsdecreased by $2.3 million to $5.5 million for the first quarter of fiscal 2005from $7.8 million for the first quarter of fiscal 2004.  Thisdecrease in cash provided by operations was primarily the result of decreasednet income, as well as less cash generated from operating working capitalcompared to the first quarter of fiscal 2004.  During the first quarter offiscal 2005, we used our cash provided by operations primarily to pay forcapital expenditures.  During the firstquarter of fiscal 2004, we used our cash provided by operations to pay forcapital expenditures and to increase our short-term investments.

 

For the first quarter of fiscal 2005, we spent $5.4 million oncapital expenditures, including $4.0 million for leasehold improvements,fixtures and equipment principally for new store facilities, as well asimprovements to existing stores, and $1.4 million for our distribution andcorporate facilities and information systems. This compares to$3.6 million in capital expenditures for the first quarter of fiscal 2004,of which $2.5 million was spent for new store facilities and improvementto existing stores and retail locations, and $1.1 million for ourdistribution and corporate facilities and information systems.  Theincrease in capital expenditures was primarily due to increased expenditurescompared to last year for new store openings, primarily due to multi-brandstore openings, as well as increased expenditures for store relocations andexpansions, and improvements to existing stores.

 

On March 5, 2003, our Board of Directors approved a share repurchaseprogram under which we may repurchase up to $10.0 million of our outstandingcommon stock from time to time in private transactions or on the open marketthrough March 4, 2005, unless extended. As of December 31, 2004, we have repurchased and retired 142,269shares in the aggregate pursuant to this program at a total cost of $3.2million, at an average cost of $22.79 per share.  No repurchaseswere made during the quarter ended December 31, 2004.  The indenture governing the New SeniorNotes and the terms of both our former and new credit facilities containrestrictions that place limits on certain payments by us, including payments torepurchase shares of our common stock. Our repurchases of common stock havebeen made in compliance with all restrictions under the indenture governing theNew Senior Notes and the terms of both the former and new credit facilities(see below).

 

On October 15, 2004, we entered into a new five-year $60.0 millionsenior secured revolving credit facility (the “New Credit Facility”) whichreplaced our former $60 million credit facility. The New Credit Facility willmature on October 15, 2009.  We paidcertain closing fees in connection with the negotiation and execution of theNew Credit Facility. We also pay an unused line fee under the New CreditFacility and certain early termination fees if the New Credit Facility isterminated prior to its third anniversary. There are no financial covenantrequirements under the New Credit Facility unless either (i) Excess Availability (as defined in the agreement)falls below $10 million, or (ii) average Financial Covenant AdjustedAvailability (as defined in the agreement) for any calendar month is less than$15 million. If either of the events in items (i) or (ii) aboveoccurs, we would be required to meet a certain minimum fixed charge coverageratio (which increases from 1.00x during the first two years of the New CreditFacility to 1.10x during the fifth year of the New Credit Facility).  Duringthe period of time that the New Credit Facility was outstanding during thefirst quarter of fiscal 2005, we exceeded the requirements of ExcessAvailability and Financial Covenant Adjusted Availability.  The New Credit Facility is secured by a security interest in our accountsreceivable, inventory, real estate interests, cash, intangibles and certainother assets. The interest rate on outstanding borrowings is equal to, at ourelection, either the lender’s prime rate or the lender’s LIBOR rate plus theapplicable margin. The applicable margin for LIBOR rate borrowings is variable,ranging from 1.25% to 1.75%, based upon the availability calculation made inaccordance with the agreement.

 

The letter of credit obligations that were in place under the formercredit facility and the special purpose letter of credit facility are nowgoverned by the terms of the New Credit Facility. As of December 31, 2004, outstanding borrowings under the NewCredit Facility consisted of no direct borrowings and $6.9 million in lettersof credit, with available borrowings of $53.1 million.  We expect that we will havedirect borrowings under our New Credit Facility during certain periods offiscal 2005, reflecting seasonal variations in cash flow.

 

16

----

 

Our management believes that our current cashand working capital positions, expected operating cash flows and availableborrowing capacity under our credit facility will be sufficient to fund ourworking capital, capital expenditures and debt repayment requirements and tofund stock and/or debt repurchases, if any, for at least the next twelvemonths.

 

**Critical Accounting Policies and Estimates**

 

Our consolidated financial statements havebeen prepared in accordance with accounting principles generally accepted inthe United States. These generally accepted accounting principles requiremanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements and the reported amountsof net sales and expenses during the reporting period.

 

Our significant accounting policies weredescribed in Note 2 of “Notes to Consolidated Financial Statements”contained in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2004.  We believe that the following discussionaddresses our critical accounting policies, which are those that are mostimportant to the portrayal of our financial condition and results of operationsand require management’s most difficult, subjective and complex judgments,often as a result of the need to make estimates about the effect of mattersthat are inherently uncertain.  If actual results were to differsignificantly from estimates made, future reported results could be materiallyaffected.  However, we are not currently aware of any reasonably likelyevents or circumstances that would result in materially different results.

 

Our senior management has reviewed thesecritical accounting policies and estimates and the related Management’sDiscussion and Analysis of Financial Condition and Results of Operations withthe Audit Committee of our Board of Directors.

 

***Inventories.*** We value our inventories, which consistprimarily of maternity apparel, at the lower of cost or market. Cost isdetermined on the first-in, first-out method (FIFO) and includes the cost ofmerchandise, freight, duty, agent commissions and broker fees. A periodicreview of inventory quantities on hand is performed in order to determine if inventoryis properly valued at the lower of cost or market. Factors related to currentinventories such as future consumer demand and fashion trends, current aging,current analysis of merchandise based on receipt date, current and anticipatedretail markdowns or wholesale discounts, and class or type of inventory areanalyzed to determine estimated net realizable values.  Criteria utilizedby the Company to quantify aging trends include factors such as the amount ofmerchandise received within the past twelve months, merchandise received morethan one year before with quantities on-hand in excess of 12 months of sales,and merchandise currently selling below cost.  A provision is recorded toreduce the cost of inventories to the estimated net realizable values, ifrequired. Inventories as of December 31, 2004 and September 30, 2004totaled $98.1 million and $92.7 million, respectively, representingapproximately 37.6% and 36.9% of total assets, respectively. Given thesignificance of inventories to our consolidated financial statements, thedetermination of net realizable values is considered to be a criticalaccounting estimate. Any significant unanticipated changes in the factors notedabove could have a significant impact on the value of our inventories and ourreported operating results.

 

***Long-Lived Assets.***  Ourlong-lived assets consist principally of store leasehold improvements and areincluded in the “Property, Plant and Equipment, net” line item in ourconsolidated balance sheets. These long-lived assets are recorded at cost andare amortized using the straight-line method over the shorter of the lease termor their estimated useful life, generally ten years.  Net property, plantand equipment as of December 31, 2004 and September 30, 2004 totaled$63.4 million and $60.3 million, respectively, representing approximately 24.3%and 24.0% of total assets, respectively.

 

In assessing potential impairment of theseassets, we periodically evaluate the historical and forecasted operatingresults and cash flows on a store-by-store basis. Newly-opened stores may taketime to generate positive operating and cash flow results. Factors such as (i)store type, that is, company store or leased department, (ii) store concept,that is, Motherhood, Mimi Maternity, A Pea in the Pod or Destination Maternity,(iii) store location, for example, urban area versus suburb, (iv) currentmarketplace awareness of our brands, (v) local customer demographic data, (vi)anchor stores within the malls in which our stores are located and (vii)current fashion trends are all considered in determining the time framerequired for a store to achieve positive financial results, which is assumed tobe within two years from the date a store location is opened.  If economic conditions are substantiallydifferent from our expectations, the carrying value of certain of ourlong-lived assets may become impaired.  As a result of our impairmentassessment, we recorded write-downs of long-lived assets of $0.5 million forthe first quarter of fiscal 2005, and $0.1 million for the first quarter offiscal 2004.

 

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

 

17

----

 

combinations and is separately disclosed inour consolidated balance sheets.  As of both December 31, 2004 andSeptember 30, 2004, goodwill totaled $50.4 million, representingapproximately 19.3% and 20.0%, respectively, of total assets.  InJune 2001, the FASB issued SFAS No. 142, “Goodwill and Other IntangibleAssets.” SFAS No. 142 requires that goodwill no longer be amortized, butinstead be tested for impairment at least annually or as impairment indicatorsarise.

 

The impairment test requires us to comparethe fair value of business reporting units to their carrying value, includingassigned goodwill.  In assessing potential impairment of goodwill, we havedetermined that we have one reporting unit for purposes of applying SFAS No.142 based on our reporting structure. The fair value of our single reportingunit is determined based on the fair market value of our outstanding commonstock on a control basis. The factors taken into account indetermining the fair market value of our outstanding common stock on a controlbasis are: (i) the trading value of our outstanding common stock on anestablished public market, and (ii) the premium over the trading price ofour outstanding common stock that an investor would pay for a control ownershipinterest in our Company, as determined through a third party evaluation. Thecarrying value of our single reporting unit, expressed on a per share basis, isrepresented by our book value per share of outstanding common stock. Weperformed the initial adoption impairment test in early fiscal 2002. Theresults of the initial impairment test and the annual impairment test performedas of September 30, 2004, 2003 and 2002 indicated the fair value of thereporting unit exceeded the carrying value. As of September 30, 2004, our bookvalue was $12.73 per share of outstanding common stock and the closing tradingprice of our common stock was $14.50 per share. If the fair value of ouroutstanding common stock on a control basis were less than $12.73 per share onSeptember 30, 2004, our goodwill would have become impaired.

 

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

 

The temporary differences between the bookand tax treatment of income and expenses result in deferred tax assets andliabilities, which are included within our consolidated balance sheets. We mustthen assess the likelihood that our deferred tax assets will be recovered fromfuture taxable income. Actual results could differ from this assessment ifadequate taxable income is not generated in future periods. As ofDecember 31, 2004 and September 30, 2004, net deferred tax assets totaled$16.2 million, representing approximately 6.2% and 6.4%, respectively, of totalassets. To the extent we believe that recovery of the deferred tax assets isnot more likely than not, we must establish a valuation allowance. To theextent we establish a valuation allowance or change the allowance in a period,income tax expense will be impacted.

 

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

 

**New Accounting Pronouncements**

 

***SFAS No. 123(R).***  In December 2004, the FASB revised SFASNo. 123 by issuing SFAS No. 123(R), “Share-Based Payment.”  SFAS No. 123(R) replaces SFAS No. 123 and APBOpinion No. 25 and establishes standards for the accounting for transactions inwhich an entity exchanges its equity instruments for goods and services.  SFAS No. 123(R) requires that thecompensation cost relating to share-based payment transactions be recognized infinancial statements,

 

18

----

 

measured by the fair value of the equity or liability instrumentsissued, and is effective as of the first reporting period that begins afterJune 15, 2005 for public entities that do not file as small businessissuers.  We have previously disclosedthe pro forma impact on our earnings of adopting the fair value method ofaccounting for stock-based compensation under SFAS No. 123 in notes to ourconsolidated financial statements for the years ended September 30, 2002, 2003and 2004 and the three months ended December 31, 2004.  The fair value-based method of SFAS No. 123is similar in most respects to the fair value-based method under SFAS No.123(R); however, certain transition rules of SFAS No. 123(R) may affect theimpact on our consolidated financial position or results of operations.  Such impact, if any, on our consolidatedfinancial position or results of operations has not yet been determined.

 

**Forward-Looking Statements**

 

Some of the information in this report,including the information incorporated by reference (as well as informationincluded in oral statements or other written statements made or to be made byus), contains forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended (the “Exchange Act”), andSection 21E of the Securities Exchange Act of 1934, as amended. Theforward-looking statements involve a number of risks and uncertainties. Anumber of factors could cause our actual results, performance, achievements orindustry results to be materially different from any future results,performance or achievements expressed or implied by these forward-lookingstatements. These factors include, but are not limited to: the success of ournew business initiatives, future sales trends in our existing store base,changes in consumer spending patterns, raw material price increases, consumerpreferences and overall economic conditions, the impact of competition andpricing, availability of suitable store locations, continued availability ofcapital and financing, ability to hire and develop senior management and salesassociates, ability to develop and source merchandise, ability to receiveproduction from foreign sources on a timely basis, potential stock repurchases,potential debt repurchases, war or acts of terrorism and other factorsreferenced in our Annual Report on Form 10-K, including those set forth underthe caption “Risk Factors.”

 

In addition, these forward–looking statementsnecessarily depend upon assumptions, estimates and dates that may be incorrector imprecise and involve known and unknown risks, uncertainties and otherfactors. Accordingly, any forward-looking statements included in this report donot purport to be predictions of future events or circumstances and may not berealized. Forward-looking statements can be identified by, among other things,the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,”“seeks,” “pro forma,” “anticipates,” “intends,” “continues,” “could,” “estimates,”“plans,” “potential,” “predicts,” “goal,” “objective,” or the negative of anyof these terms, or comparable terminology, or by discussions of outlook, plans,goals, strategy or intentions. Forward-looking statements speak only as of thedate 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.

 

19

----

 

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

 

Mothers Work is exposed to market risk fromchanges in interest rates.  We have not entered into any market sensitiveinstruments for trading purposes.  The analysis below presents thesensitivity of the market value of our financial instruments to selectedchanges in market interest rates.  The range of changes presented reflectsour view of changes that are reasonably possible over a one-year period.

 

As of December 31, 2004, the principalcomponents of our debt portfolio were the $125.0 million of New SeniorNotes and the $60.0 million credit facility, both of which are denominatedin U.S. dollars.  The fair value of the debt portfolio is referred to asthe “debt value.”  The New Senior Notes bear interest at a fixed rated of111⁄4%.  Although a change in market interest rates would not affect theinterest incurred or cash flow related to this fixed rate portion of the debtportfolio, the debt value would be affected.

 

Our revolving credit facility carries avariable interest rate that is tied to market indices.  As ofDecember 31, 2004, we had no direct borrowings and $6.9 million of lettersof credit outstanding under our credit facility.  Borrowings under thecredit facility would have borne interest at a rate between approximately 3.7%and 5.3% per annum as of December 31, 2004.  Any future borrowingsunder the credit facility would, to the extent of outstanding borrowings, beaffected by changes in market interest rates. A change in market interest rateson the variable portion of the debt portfolio impacts the interest incurred andcash flows, but does not impact the value of the financial instrument.

 

The sensitivity analysis as it relates to thefixed rate portion of our debt portfolio assumes an instantaneous 100 basispoint move in interest rates from their levels as of December 31, 2004,with all other variables held constant.  A 100 basis point increase inmarket interest rates would result in a decrease in the value of the debt byapproximately $5.0 million as of December 31, 2004.  A 100 basispoint decline in market interest rates would cause the debt value to increaseby approximately $5.2 million as of December 31, 2004.

 

Based on the variable rate debt included in our debt portfolio as ofDecember 31, 2004, a 100 basis point increase in interest rates wouldresult in additional interest incurred for the year of less than $0.1 million.A 100 basis point decrease in interest rates would correspondingly lower ourinterest expense for the year by less than $0.1 million.

 

Other than as described above, we do notbelieve that the market risk exposure on other financial instruments ismaterial.

 

**Item 4. Controls and Procedures**

 

***(a) Evaluation of disclosure controls andprocedures*****.**  Our disclosure controls and procedures aredesigned to ensure that information required to be disclosed by us in thereports that are filed or submitted under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms. These disclosurecontrols and procedures include controls and procedures designed to ensure thatinformation required to be disclosed under the Securities Exchange Act of 1934is accumulated and communicated to our management on a timely basis to allowdecisions regarding required disclosure. We evaluated the effectiveness of thedesign and operation of its disclosure controls and procedures as of December31, 2004. Based on this evaluation, the Company’s Chief Executive Officer andChief Financial Officer have concluded that as of December 31, 2004, thesecontrols and procedures were effective.

 

***(b) Change in Internal Controls*.**  There have been no changes in internalcontrol over financial reporting identified in connection with the foregoingevaluation that occurred during the fiscal quarter ended December 31, 2004,that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

20

----

 

**PART II. OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

On January 12, 2005, a purported class action was filed against us inthe United States District Court for the District of Connecticut.  The complaint alleges that, under applicablefederal and state law, certain former and current employees should havereceived overtime compensation.  Theplaintiffs in this case are seeking unspecified actual damages, penalties andattorneys’ fees. At this stage in these proceedings, we are unable to predictthe outcome of this case, which we are vigorously defending.  We have undertaken preliminary steps tomediate certain of these claims.  Weunderstand that similar proceedings have been brought against other retailcompanies.

 

In addition, from time to time, we are namedas a defendant in legal actions arising from our normal business activities.Although the amount of any liability that could arise with respect to currentlypending actions, including the matter specifically described above, cannot beaccurately predicted, we do not believe that the resolution of any pendingaction will have a material adverse effect on our financial position or resultsof operations.

 

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

 

The following table provides information aboutpurchases by us during the quarter ended December 31, 2004 of equity securitiesthat are registered by us pursuant to Section 12 of the Securities Exchange Actof 1934:

 

**Issuer Purchases of Equity Securities**

 
| **Period**                      | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased as  Part of a Publicly  Announced Program (1)** | ** ** | **Maximum  Approximate Dollar  Value of Shares that  May Yet Be Purchased  Under the Program (2)** | ** ** |
|---------------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|
| October 1 to October 31, 2004   |       | —                                  |       | —                            |       | —                                                                              |       |                                                                                               | $6,756,983 |   |
| November 1 to November 30, 2004 |       | —                                  |       | —                            |       | —                                                                              |       |                                                                                               | $6,756,983 |   |
| December 1 to December 31, 2004 |       | —                                  |       | —                            |       | —                                                                              |       |                                                                                               | $6,756,983 |   |
| Total                           |       | —                                  |       | —                            |       | —                                                                              |       |                                                                                               | $6,756,983 |   |

 

----

(1) As ofDecember 31, 2004, we had repurchased an aggregate of 142,269 shares at a totalcost of approximately $3.2 million pursuant to the repurchase program that waspublicly announced in March 2003.

 

(2) OnMarch 5, 2003, we announced that our Board of Directors had approved a sharerepurchase program under which we may buy up to $10.0 million of our outstandingcommon stock from time to time in open market purchases or through privatetransactions until March 4, 2005, unless extended.

 

**Item 6.  Exhibits**

 
| **Exhibit  No.** | ** ** | **Description** | ** **                                                                                                                                                                                                                                                                                       | ** ** |
|------------------|------------|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 3.1              | ** ** |            | By-Laws of the Company (Exhibit 3.2 to the Company’s Current Report  on Form 8-K dated November 17, 2004).*****                                                                                                                                                                   | ** ** | ** ** |
| 10.1             | ** ** |            | Amended and Restated  Loan and Security Agreement dated as of October 15, 2004 by and among Mothers  Work, Inc., Cave Springs, Inc., Mothers Work Canada, Inc., and Fleet Retail  Group, Inc. (Exhibit 10.2 to the Company’s Current Report on Form 8-K  dated October 15, 2004).***** | ** ** | ** ** |
| 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.                                                                                                      |       |   |

 

----

*Incorporated by reference.

 

21

----

 

**Signatures**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
| MOTHERS WORK, INC.          |   |
|-----------------------------|--------|
|                        |   |   |   |
| Date: February 9, 2005 | By:    | ** /s/ DAN W. MATTHIAS** | ** ** | ** ** |
|                        |   | Dan W. Matthias | * * |
|                        |   | *Chairman of the Board and  Chief Executive Officer* | * * |
|                        |   |   | * * |
|                        |   |   |   |
| Date: February 9, 2005 | By:    | ** /s/ EDWARD M. KRELL** | ** ** | ** ** |
|                        |   | Edward M. Krell  | * * |
|                        |   | *Executive Vice President—**Chief Financial Officer* | * * |
|                             |        |  |  |  |  |

 

22

----