**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington,DC  20549

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**FORM 10-Q**

| **x**                                                   | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE**  |
|---------------------------------------------------------|------------|--------------------------------------------------------------------|
| ** **                                              | ** ** | **SECURITIES EXCHANGE ACT OF 1934**                                |
| **for the quarterly period ended August 4,  2007** |
| **OR**                                                  |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE** |
| ** **                                              | ** ** | **SECURITIES EXCHANGE ACT OF 1934**                                |

 

**for the transition periodfrom                to                .**

**COMMISSION FILENUMBER:  1-32315**

**NEW YORK & COMPANY, INC.**(Exactname of registrant as specified in its charter)

| **DELAWARE**                                                   |   | **33-1031445**                                              |
|----------------------------------------------------------------|--------|-------------------------------------------------------------|
| (State of  incorporation)                                      |   | (I.R.S. Employer  Identification No.)                       |
| **450 West 33rd Street**                                       |   | ** **                                                  |
| **5th  Floor**                                                 |   | ** **                                                  |
| **New  York, New York 10001**                                  |   | **(212) 884-2000**                                     |
| (Address of  Principal Executive Offices,  including Zip Code) |   | (Registrant’s  Telephone Number,  Including Area Code) |

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes x   No o

Indicateby check mark if the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer  o |   | Accelerated  filer  x |   | Non-accelerated  filer  o |
|--------------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

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

Asof August 31, 2007, the registrant had 58,751,621 shares of commonstock outstanding.

 

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**TABLEOF CONTENTS**

| PART I. FINANCIAL  INFORMATION |                                                                                        |   |   |
|-------------------------------------|---------------------------------------------------------------------------------------------|--------|--------|
| Item 1.                             | Financial Statements                                                                        |   | 1      |   |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 12     |   |
| Item 3.                             | Quantitative  and Qualitative Disclosures About Market Risk                                 |   | 23     |   |
| Item 4.                             | Controls and  Procedures                                                                    |   | 23     |   |
| PART II. OTHER  INFORMATION    |                                                                                        |   |   |
| Item 1.                             | Legal Proceedings                                                                           |   | 24     |   |
| Item 1A.                            | Risk Factors                                                                                |   | 24     |   |
| Item 2.                             | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   | 24     |   |
| Item 3.                             | Defaults Upon  Senior Securities                                                            |   | 24     |   |
| Item 4.                             | Submission of  Matters to a Vote of Security Holders                                        |   | 24     |   |
| Item 5.                             | Other Information                                                                           |   | 25     |   |
| Item  6.                            | Exhibits                                                                                    |   | 25     |   |

 

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**PART I.FINANCIAL INFORMATION**

**ITEM 1.**                FINANCIALSTATEMENTS

**New York & Company, Inc. andSubsidiariesCondensed Consolidated Statements of Income (Unaudited)**

| ** **                                                                            | ** ** | **Three months  ended  August 4, 2007**                             | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                            | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net sales                                                                             |       |                                                                               | $          | 294,402                                               |       |                                                 |       | $                                                   | 264,858    |   |   |   | $ | 578,364 |   |   |   | $ | 531,995 |   |   |
| Cost of goods  sold, buying and occupancy costs                                       |       |                                                                               | 215,571    |                                                  |       |                                                 | 189,277    |                                                |       |   | 421,090 |   |   |   | 377,311 |   |   |
| Gross profit                                                                          |       |                                                                               | 78,831     |                                                  |       |                                                 | 75,581     |                                                |       |   | 157,274 |   |   |   | 154,684 |   |   |
| Selling, general  and administrative expenses                                         |       |                                                                               | 72,759     |                                                  |       |                                                 | 64,200     |                                                |       |   | 149,601 |   |   |   | 132,684 |   |   |
| Operating income                                                                      |       |                                                                               | 6,072      |                                                  |       |                                                 | 11,381     |                                                |       |   | 7,673 |   |   |   | 22,000 |   |   |
| Interest expense,  net of interest income of $500, $335, $959, and $549, respectively |       |                                                                               | 219        |                                                  |       |                                                 | 477        |                                                |       |   | 480 |   |   |   | 967 |   |   |
| Income before income taxes                                                            |       |                                                                               | 5,853      |                                                  |       |                                                 | 10,904     |                                                |       |   | 7,193 |   |   |   | 21,033 |   |   |
| Provision for  income taxes                                                           |       |                                                                               | 2,354      |                                                  |       |                                                 | 4,405      |                                                |       |   | 2,892 |   |   |   | 8,477 |   |   |
| Net income                                                                            |       |                                                                               | $          | 3,499                                                 |       |                                                 |       | $                                                   | 6,499      |   |   |   | $ | 4,301 |   |   |   | $ | 12,556 |   |   |
| Basic earnings per share                                                              |       |                                                                               | $          | 0.06                                                  |       |                                                 |       | $                                                   | 0.12       |   |   |   | $ | 0.07 |   |   |   | $ | 0.23 |   |   |
| Diluted earnings per share                                                            |       |                                                                               | $          | 0.06                                                  |       |                                                 |       | $                                                   | 0.11       |   |   |   | $ | 0.07 |   |   |   | $ | 0.21 |   |   |
| Weighted average shares  outstanding:                                                 |       |                                                                               |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock                                                          |       |                                                                               | 58,262     |                                                  |       |                                                 | 55,656     |                                                |       |   | 58,033 |   |   |   | 55,441 |   |   |
| Diluted shares of  common stock                                                       |       |                                                                               | 60,954     |                                                  |       |                                                 | 59,852     |                                                |       |   | 60,911 |   |   |   | 59,798 |   |   |

 

See accompanying notes.

1

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**New York & Company, Inc. andSubsidiariesCondensed Consolidated Balance Sheets**

| ** **                                                                                                                                                                                                             | ** ** | **August 4,  2007**                                                       | ** ** | **February 3,  2007** | ** ** | **July 29,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                             | ** ** | **(Unaudited)**                                                                | ** ** | **(Audited)**              | ** ** | **(Unaudited)**         | ** ** |
| ** **                                                                                                                                                                                                             | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| **Assets**                                                                                                                                                                                                             | ** ** |                                                                           | ** ** | ** **                 |       |                    | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                        |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                              |       |                                                                           | $          | 27,749                     |       |                    |       | $ | 68,064 |   |   |   | $ | 36,888 |   |   |
| Accounts receivable                                                                                                                                                                                                    |       |                                                                           | 18,341     |                       |       |                    | 14,270     |   |   |   | 21,687 |   |   |
| Inventories, net                                                                                                                                                                                                       |       |                                                                           | 122,765    |                       |       |                    | 110,088    |   |   |   | 102,526 |   |   |
| Prepaid expenses                                                                                                                                                                                                       |       |                                                                           | 27,761     |                       |       |                    | 20,351     |   |   |   | 18,584 |   |   |
| Other current assets                                                                                                                                                                                                   |       |                                                                           | 3,041      |                       |       |                    | 2,089      |   |   |   | 1,934 |   |   |
| Total current  assets                                                                                                                                                                                                  |       |                                                                           | 199,657    |                       |       |                    | 214,862    |   |   |   | 181,619 |   |   |
| Property and  equipment, net                                                                                                                                                                                           |       |                                                                           | 226,800    |                       |       |                    | 210,163    |   |   |   | 181,949 |   |   |
| Goodwill                                                                                                                                                                                                               |       |                                                                           | 11,088     |                       |       |                    | 11,088     |   |   |   | 11,088 |   |   |
| Intangible assets                                                                                                                                                                                                      |       |                                                                           | 32,053     |                       |       |                    | 32,053     |   |   |   | 32,053 |   |   |
| Other assets                                                                                                                                                                                                           |       |                                                                           | 1,367      |                       |       |                    | 1,633      |   |   |   | 1,949 |   |   |
| Total assets                                                                                                                                                                                                           |       |                                                                           | $          | 470,965                    |       |                    |       | $ | 469,799 |   |   |   | $ | 408,658 |   |   |
| **Liabilities  and stockholders’ equity**                                                                                                                                                                         | ** ** |                                                                           | ** ** | ** **                 |       |                    | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                                                   |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Current portion, long-term debt                                                                                                                                                                                        |       |                                                                           | $          | 6,000                      |       |                    |       | $ | 6,000 |   |   |   | $ | 6,000 |   |   |
| Accounts payable                                                                                                                                                                                                       |       |                                                                           | 67,661     |                       |       |                    | 66,631     |   |   |   | 68,944 |   |   |
| Accrued expenses                                                                                                                                                                                                       |       |                                                                           | 52,463     |                       |       |                    | 61,982     |   |   |   | 49,770 |   |   |
| Income taxes payable                                                                                                                                                                                                   |       |                                                                           | —     |                       |       |                    | 6,391      |   |   |   | 587 |   |   |
| Deferred income taxes                                                                                                                                                                                                  |       |                                                                           | 2,540      |                       |       |                    | 3,894      |   |   |   | 3,006 |   |   |
| Total current  liabilities                                                                                                                                                                                             |       |                                                                           | 128,664    |                       |       |                    | 144,898    |   |   |   | 128,307 |   |   |
| Long-term  debt, net of current portion                                                                                                                                                                                |       |                                                                           | 22,500     |                       |       |                    | 25,500     |   |   |   | 28,500 |   |   |
| Deferred income  taxes                                                                                                                                                                                                 |       |                                                                           | 2,182      |                       |       |                    | 2,990      |   |   |   | 3,403 |   |   |
| Deferred rent                                                                                                                                                                                                          |       |                                                                           | 65,905     |                       |       |                    | 55,254     |   |   |   | 48,752 |   |   |
| Other liabilities                                                                                                                                                                                                      |       |                                                                           | 4,594      |                       |       |                    | 358        |   |   |   | 655 |   |   |
| Total liabilities                                                                                                                                                                                                      |       |                                                                           | 223,845    |                       |       |                    | 229,000    |   |   |   | 209,617 |   |   |
| Stockholders’  equity:                                                                                                                                                                                            |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Common stock, voting, par value $0.001; 300,000  shares authorized; 58,383, 57,538 and 55,938 shares issued and outstanding at  August 4, 2007, February 3, 2007, and July 29, 2006,  respectively |       |                                                                           | 58         |                       |       |                    | 57         |   |   |   | 56 |   |   |
| Additional paid-in capital                                                                                                                                                                                             |       |                                                                           | 146,136    |                       |       |                    | 141,804    |   |   |   | 133,924 |   |   |
| Retained earnings                                                                                                                                                                                                      |       |                                                                           | 101,132    |                       |       |                    | 99,144     |   |   |   | 65,530 |   |   |
| Accumulated other comprehensive loss                                                                                                                                                                                   |       |                                                                           | (206       | )                          |       |                    | (206       | ) |   |   | (469 | ) |   |
| Total  stockholders’ equity                                                                                                                                                                                       |       |                                                                           | 247,120    |                       |       |                    | 240,799    |   |   |   | 199,041 |   |   |
| Total liabilities and  stockholders’ equity                                                                                                                                                                       |       |                                                                           | $          | 470,965                    |       |                    |       | $ | 469,799 |   |   |   | $ | 408,658 |   |   |

 

See accompanying notes.

2

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**New York & Company, Inc. andSubsidiariesCondensed Consolidated Statements of Cash Flows (Unaudited)**

| ** **                                                                                   | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **(Amounts in thousands)**                 | ** ** |
| **Operating activities**                                                                     | ** ** |                                                 | ** ** | ** **                                          |       |   | ** ** | ** ** |   |
| Net income                                                                                   |       |                                                 | $          | 4,301                                               |       |   |   | $ | 12,556 |   |   |
| Adjustments to reconcile  net income to net cash (used in) provided by operating activities: |       |                                                 |       |                                                |       |   |   |   |   |
| Depreciation and amortization                                                                |       |                                                 | 19,115     |                                                |       |   | 15,651 |   |   |
| Amortization of deferred financing costs                                                     |       |                                                 | 139        |                                                |       |   | 138 |   |   |
| Share-based compensation expense                                                             |       |                                                 | 931        |                                                |       |   | 790 |   |   |
| Deferred income taxes                                                                        |       |                                                 | (2,162     | )                                                   |       |   | (1,330 | ) |   |
| Changes in  operating assets and liabilities:                                                |       |                                                 |       |                                                |       |   |   |   |   |
| Accounts receivable                                                                          |       |                                                 | (4,071     | )                                                   |       |   | (8,400 | ) |   |
| Inventories, net                                                                             |       |                                                 | (12,677    | )                                                   |       |   | 7,130 |   |   |
| Prepaid expenses                                                                             |       |                                                 | (7,410     | )                                                   |       |   | 186 |   |   |
| Accounts payable                                                                             |       |                                                 | 1,030      |                                                |       |   | (22,036 | ) |   |
| Accrued expenses                                                                             |       |                                                 | (9,510     | )                                                   |       |   | (5,140 | ) |   |
| Income taxes payable                                                                         |       |                                                 | (8,704     | )                                                   |       |   | 587 |   |   |
| Deferred rent                                                                                |       |                                                 | 10,651     |                                                |       |   | 13,638 |   |   |
| Other assets and liabilities                                                                 |       |                                                 | 3,352      |                                                |       |   | (1,849 | ) |   |
| Net cash (used  in) provided by operating activities                                         |       |                                                 | (5,015     | )                                                   |       |   | 11,921 |   |   |
| **Investing  activities**                                                                    | ** ** |                                                 | ** ** | ** **                                          |       |   | ** ** | ** ** |   |
| Capital  expenditures                                                                        |       |                                                 | (35,638    | )                                                   |       |   | (38,057 | ) |   |
| Net cash used in  investing activities                                                       |       |                                                 | (35,638    | )                                                   |       |   | (38,057 | ) |   |
| **Financing  activities**                                                                    | ** ** |                                                 | ** ** | ** **                                          |       |   | ** ** | ** ** |   |
| Net proceeds from  public offering                                                           |       |                                                 | —     |                                                |       |   | 2,294 |   |   |
| Payment of  offering costs related to public offering                                        |       |                                                 | —     |                                                |       |   | (439 | ) |   |
| Repayment of debt                                                                            |       |                                                 | (3,000     | )                                                   |       |   | (3,000 | ) |   |
| Proceeds from  exercise of stock options                                                     |       |                                                 | 162        |                                                |       |   | 840 |   |   |
| Excess tax  benefit from exercise of stock options                                           |       |                                                 | 3,240      |                                                |       |   | 5,893 |   |   |
| Other                                                                                        |       |                                                 | (64        | )                                                   |       |   | — |   |   |
| Net cash provided  by financing activities                                                   |       |                                                 | 338        |                                                |       |   | 5,588 |   |   |
| Net decrease in  cash and cash equivalents                                                   |       |                                                 | (40,315    | )                                                   |       |   | (20,548 | ) |   |
| Cash and cash  equivalents at beginning of period                                            |       |                                                 | 68,064     |                                                |       |   | 57,436 |   |   |
| Cash and cash  equivalents at end of period                                                  |       |                                                 | $          | 27,749                                              |       |   |   | $ | 36,888 |   |   |

 

See accompanying notes.

3

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**New York & Company, Inc. andSubsidiariesCondensed Consolidated Statement of Stockholders’ Equity (Unaudited)**

| ** **                                         | ** ** | ** **                           | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|--------------------------------------|------------|-------------|------------|----------------|------------|-------------------|------------|-----------------|------------|------------|------------|
| ** **                                         | ** ** | ** **                           | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**       | ** ** | ** ** | ** ** |
| ** **                                         | ** ** | **Common Stock**                | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | ** **      | ** ** |
| ** **                                         | ** ** | **Shares**                           | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Loss**        | ** ** | **Total**  | ** ** |
| ** **                                         | ** ** | **(Amounts in thousands)** | ** ** |
| Balance at  February 3, 2007                  |       | 57,538                               |       |        | $          | 57             |       |              | $          | 141,804         |       | $          | 99,144     |   |   | $ | (206 | ) |   | $ | 240,799 |   |
| Stock options  exercised                           |       | 845                                  |       |        | 1          |           |       | 161               |       | —          |       |       | —     |   |   | 162 |   |
| Excess tax  benefit from exercise of stock options |       | —                               |       |        | —     |           |       | 3,240             |       | —          |       |       | —     |   |   | 3,240 |   |
| Share-based  compensation expense                  |       | —                               |       |        | —     |           |       | 931               |       | —          |       |       | —     |   |   | 931 |   |
| Cumulative effect  of adoption of FIN 48      |       | —                               |       |        | —     |           |       | —            |       | (2,313          | )          |       | —     |   |   | (2,313 | ) |
| Net income                                         |       | —                               |       |        | —     |           |       | —            |       | 4,301           |       |       | —     |   |   | 4,301 |   |
| Balance at  August 4, 2007                    |       | 58,383                               |       |        | $          | 58             |       |              | $          | 146,136         |       | $          | 101,132    |   |   | $ | (206 | ) |   | $ | 247,120 |   |

 

See accompanying notes.

4

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements August 4, 2007 (Unaudited)**

**1.**   Organizationand Basis of Presentation

New York &Company, Inc. (together with its subsidiaries, collectively the “Company”)is a leading specialty retailer of fashion-oriented, moderately-priced women’sapparel. The Company designs and sources its proprietary branded  *New York &Company*TM  merchandise soldexclusively through its national network of New York & Company retailstores and on-line at www.nyandcompany.com. The target customers for theCompany’s *New York & Company*TM  merchandise are fashion-conscious,value-sensitive women between the ages of 25 and 45. On July 19, 2005, theCompany acquired Jasmine Company, Inc. (“JasmineSola”), a Boston-based,privately held women’s retailer of upscale and contemporary apparel, footwearand accessories sold through its chain of *JasmineSola*TM  branded retail stores. As of August 4,2007, the Company operated 580 retail stores in 44 states, including 23JasmineSola stores. Trademarks referenced in this Quarterly Report on Form 10-Qappear in italic type and are the property of the Company.

The accompanying condensedconsolidated financial statements include the accounts for New York &Company, Inc. and all of its subsidiaries, including Lerner New YorkHolding, Inc. (“Lerner Holding”); Lerner New York, Inc.; Lernco, Inc.;Nevada Receivable Factoring, Inc. and JasmineSola. On a stand alone basis,without the consolidation of its subsidiaries, New York & Company, Inc.has no significant independent assets or operations. All significantintercompany balances and transactions have been eliminated in consolidation.In the opinion of management, the accompanying consolidated financialstatements reflect all adjustments, which are of a normal recurring nature,necessary to present fairly the financial condition, results of operations andcash flows for the interim periods. Certain amounts in the prior periods havebeen reclassified to conform to the current period presentation.

The condensed consolidatedfinancial statements as of August 4, 2007 and July 29, 2006 and forthe thirteen weeks (“three months”) and twenty-six weeks (“six months”) ended August 4,2007 and July 29, 2006 are unaudited and are presented pursuant tothe rules and regulations of the United States Securities and ExchangeCommission (“SEC”). Accordingly, these unaudited consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements and notes thereto for the 53-week fiscal year ended February 3,2007 (“fiscal year 2006”), which were filed with the Company’s Annual Report onForm 10-K with the SEC on April 6, 2007. The 52-weekfiscal year ending February 2, 2008 is referred to herein as “fiscal year2007.” The Company’s fiscal year is a 52 or 53 week year that ends on theSaturday closest to January 31.

Due to seasonal variationsin the retail industry, the results of operations for any interim period arenot necessarily indicative of the results expected for the full fiscal year.

**2.**   PublicOffering of Common Stock

On January 25, 2006,the Company completed a public offering of 8,050,000 shares of common stock,including the underwriters’ over-allotment option, of which 130,000 shares wereoffered by the Company and 7,920,000 shares were offered by certain sellingstockholders at a price to the public of $18.50 per share. Upon consummation ofthe public offering on January 31, 2006, net proceeds of $2.3 millionand $139.8 million were distributed to the Company and sellingstockholders, respectively.

The net proceeds receivedby the Company were used to pay the fees and expenses of the offering, as wellas for general corporate purposes.

5

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) August 4, 2007 (Unaudited)**

**3.**   Acquisition

On July 19, 2005, the Company entered into aStock Purchase Agreement to acquire all of the outstanding common stock ofJasmineSola for $22.5 million in cash and 350,000 shares of New York &Company, Inc. common stock, $0.001 par value, valued at $8.1 million basedupon the closing stock price of New York & Company, Inc. on July 19,2005. In addition, the Company will issue up to 200,000 shares of its commonstock as additional consideration for the acquisition of JasmineSola contingentupon the achievement of certain growth targets over the three full fiscalyears, and on a cumulative basis, following the acquisition. No shares wereissued for fiscal year 2006. These contingent shares, if issued, will berecorded as an adjustment to the purchase price and goodwill.

The acquisition was accounted for under the purchasemethod of accounting. The purchase price allocation resulted in goodwill of$11.1 million and indefinite-lived intangible assets related to trademarks of$17.2 million.

In April 2007, theCompany completed an arbitration proceeding related to the JasmineSola StockPurchase Agreement and as a result recorded $3.3 million of charges in selling,general and administrative expenses, which consists primarily of legal costsrelated to the arbitration. The arbitration had no impact on the purchase priceor goodwill.

**4.**   EarningsPer Share

Basicearnings per share are computed by dividing net income by the weighted averagenumber of shares of common stock outstanding for the period. Diluted earningsper share are calculated based on the weighted average number of shares ofcommon stock outstanding plus the dilutive effect of stock options as if theywere exercised and unvested restricted stock as if it were vested. Areconciliation between basic and diluted earnings per share is as follows:

| ** **                                        | ** ** | **Three months  ended  August 4, 2007**                             | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                        | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net income                                        |       |                                                                               | $          | 3,499                                                 |       |                                                 |       | $                                                   | 6,499      |   |   |   | $ | 4,301 |   |   |   | $ | 12,556 |   |   |
| *Basic  EPS*                                      | * *   |                                                                               |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Weighted-average  shares outstanding:             |       |                                                                               |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock                      |       |                                                                               | 58,262     |                                                  |       |                                                 | 55,656     |                                                |       |   | 58,033 |   |   |   | 55,441 |   |   |
| Basic EPS                                         |       |                                                                               | $          | 0.06                                                  |       |                                                 |       | $                                                   | 0.12       |   |   |   | $ | 0.07 |   |   |   | $ | 0.23 |   |   |
| *Diluted EPS*                                     | * *   |                                                                               |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Weighted-average  shares outstanding:             |       |                                                                               |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock                      |       |                                                                               | 58,262     |                                                  |       |                                                 | 55,656     |                                                |       |   | 58,033 |   |   |   | 55,441 |   |   |
| Plus impact of stock options and restricted stock |       |                                                                               | 2,692      |                                                  |       |                                                 | 4,196      |                                                |       |   | 2,878 |   |   |   | 4,357 |   |   |
| Diluted shares of common stock                    |       |                                                                               | 60,954     |                                                  |       |                                                 | 59,852     |                                                |       |   | 60,911 |   |   |   | 59,798 |   |   |
| Diluted EPS                                       |       |                                                                               | $          | 0.06                                                  |       |                                                 |       | $                                                   | 0.11       |   |   |   | $ | 0.07 |   |   |   | $ | 0.21 |   |   |

 

6

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) August 4, 2007 (Unaudited)**

**4.**   Earnings Per Share (Continued)

The calculation of dilutedearnings per share for the three and six months ended August 4, 2007excludes options to purchase 965,426 and 979,506 shares, respectively, due totheir antidilutive effect. The calculation of diluted earnings per share forthe three and six months ended July 29, 2006 excludes options to purchase886,836 and 855,336 shares, respectively, due to their antidilutive effect.

**5.**   Share-BasedCompensation

In December 2004, the Financial AccountingStandards Board (“FASB”) published Statement of Financial Accounting Standards(“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123-R”).SFAS 123-R retains certain of the requirements of the original SFAS No. 123,  “Accounting for Stock-Based Compensation” (“SFAS123”) and requires that the cost resulting from all share-based paymenttransactions be treated as compensation and recognized in the consolidatedfinancial statements. The Company adopted SFAS 123-R in December 2004,utilizing the modified prospective method. Prior to the Company’s adoption ofSFAS 123-R, the Company followed SFAS 123 and treated all forms ofshare-based payments as compensation recognized in the consolidated statementof income. Therefore, the adoption of SFAS 123-R did not have a materialimpact on the Company’s consolidated financial statements.

In connection with the consummation of the publicoffering of common stock on January 31, 2006, BSMB/NYCG, LLC, an affiliateof Bear Stearns Merchant Banking, LLC and the controlling stockholder of theCompany, realized a cash return in excess of 3.0 times its investment in theCompany; at which point, 2,777,311 outstanding stock options vested inaccordance with the terms of the respective stock option agreements.

The Company recorded share-based compensation expensein the amount of $0.5 million and $0.2 million for the three monthsended August 4, 2007 and July 29, 2006, respectively, and $0.9million and $0.8 million for the six months ended August 4, 2007 and July 29,2006, respectively. Included in the $0.8 million of share-basedcompensation expense for the six months ended July 29, 2006 is$0.2 million of expense related to the 2,777,311 stock options thatvested on January 31, 2006.

The Company issued 844,992shares of common stock upon exercise of stock options during the six monthsended August 4, 2007.

**6.**   PensionPlan

The Company sponsors a single-employer defined benefitpension plan (the “plan”) covering substantially all union employees. Employeescovered by collective bargaining agreements are primarily non-management storeassociates, representing approximately 10% of the Company’s total employees.The Company’s collective bargaining agreement with the Local 1102 unit of theRetail, Wholesale and Department Store Union (RWDSU) AFL-CIO is set to expireon October 31, 2007 and is currently under renegotiation.

The plan providesretirement benefits for union employees who have attained the age of 18 andcompleted 425 hours of service in the twelve-month period following the date ofemployment. The plan 

7

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) August 4, 2007 (Unaudited)**

**6.**   Pension Plan (Continued)

provides benefits based on length of service. TheCompany’s funding policy for the pension plan is to contribute annually theamount necessary to provide for benefits based on accrued service. The Companydoes not anticipate the need for a material contribution to the plan for theremainder of the current fiscal year. Net periodic benefit cost includes thefollowing components:

| ** **                      | ** ** | **Three months  ended  August 4, 2007** | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|---------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | **(Amounts in thousands)**                   | ** ** |
| Service cost                    |       |                                                   | $          | 90                                                    |       |                                                 |       | $                                                   | 99         |   |   |   | $ | 180 |   |   |   | $ | 166 |   |   |
| Interest cost                   |       |                                                   | 137        |                                                  |       |                                                 | 135        |                                                |       |   | 274 |   |   |   | 270 |   |   |
| Expected return  on plan assets |       |                                                   | (179       | )                                                     |       |                                                 | (179       | )                                                   |       |   | (358 | ) |   |   | (359 | ) |   |
| Net periodic benefit  cost      |       |                                                   | $          | 48                                                    |       |                                                 |       | $                                                   | 55         |   |   |   | $ | 96 |   |   |   | $ | 77 |   |   |

 

**7.**   IncomeTaxes

The effective tax rates for the three months ended August 4,2007 and July 29, 2006 were 40.2% and 40.4%, respectively. The effectivetax rates for the six months ended August 4, 2007 and July 29, 2006were 40.2% and 40.3%, respectively.

The Company files U.S. federal income tax returns andincome tax returns in various state jurisdictions. Effective February 4,2007, the Company adopted FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes—an interpretation of FASB Statement No. 109.”In accordance with the Interpretation, the Company recognized acumulative-effect adjustment of $2.3 million, increasing its liability forunrecognized tax benefits, interest, and penalties and reducing the February 4,2007 balance of retained earnings. At February 4, 2007, the Companyreported a total liability of $4.5 million for unrecognized tax benefits,including interest and penalties, all of which would impact the Company’seffective tax rate if recognized. The Company does not anticipate anysignificant increases or decreases to the balance of unrecognized tax benefitsduring the next twelve months.

The Company recognizes accrued interest and penaltiesrelated to unrecognized tax benefits in income tax expense. At February 4,2007, the Company had accrued $1.4 million and $0.6 million for the potentialpayment of interest and penalties, respectively. As of February 4, 2007,the Company is subject to U.S. federal income tax examinations and state andlocal income tax examinations for the tax years 2003 through 2006.

During the six monthsended August 4, 2007, the Company recorded an additional $0.2 million forthe potential payment of interest related to its unrecognized tax benefits. Asof August 4, 2007, the Company reported a total liability of $4.7 millionfor unrecognized tax benefits, interest, and penalties, of which $0.8 millionis reported as a reduction to prepaid income taxes included within prepaidexpenses and $3.9 million is reported in other liabilities on the condensedconsolidated balance sheet.

8

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) August 4, 2007 (Unaudited)**

**8.**   Long-TermDebt and Credit Facilities

On August 22, 2007, Lerner New York, Inc.,Lernco, Inc. and Jasmine Company, Inc. entered into a Second Amendedand Restated Loan and Security Agreement (the “Loan Agreement”) with WachoviaBank, National Association, as Agent for itself and the other lender party tothe Loan Agreement. The obligations under the Loan Agreement are guaranteed byNew York & Company, Inc. and its other subsidiaries. The LoanAgreement amended and restated the Amended and Restated Loan and SecurityAgreement (the “Existing Agreement”), dated March 16, 2004, among LernerNew York, Inc. and Lernco, Inc., as borrowers, together with theAgent and the lenders party thereto, as amended. The Loan Agreement is attachedto this Quarterly Report on Form 10-Q as Exhibit 10.1.

The amendments to the Existing Agreement provide for,among other things: (i) an extension of the term of the Company’s existing$90.0 million revolving credit facility and existing $37.5 million term loan toMarch 17, 2012; (ii) a reduction of certain interest rates and feesunder the revolver; (iii) a change in the borrowing base calculation underthe Existing Agreement providing additional availability; (iv) thereduction of restrictions on, among other things, incurring indebtedness,transactions with affiliates, investments, stock repurchases, and sales ofassets; and (v) the elimination of a minimum EBITDA covenant and theaddition of a minimum fixed charge coverage ratio, as described further below.

The Company’s credit facilitiescurrently consist of a $37.5 million term loan (“January 4, 2006 term loan”),of which $28.5 million was outstanding at August 4, 2007, and a $90.0million revolving credit facility (which includes a sub-facility available forissuance of letters of credit of up to $75.0 million), both having a maturitydate of March 17, 2012.

As of August 4, 2007, the Company hadavailability under its revolving credit facility, as amended by the LoanAgreement, of $66.1 million, net of letters of credit outstanding of $6.9million, as compared to availability of $44.7 million, net of letters of creditoutstanding of $9.7 million, as of July 29, 2006.

The revolving loans under the credit facilities bearinterest, at the Company’s option, either at a floating rate equal to theEurodollar rate plus a margin of between 1.00% and 1.25% per year, dependingupon the Company’s financial performance, or the Prime rate. The Company paysthe lenders under the revolving credit facility a monthly fee on outstandingcommercial letters of credit at a rate of 0.625% per year and on standbyletters of credit at a rate of between 1.00% and 1.25% per year, depending uponthe Company’s financial performance, plus a monthly fee on a proportion of theunused commitments under that facility at a rate of 0.20% per year. The termloan bears interest at a floating rate equal to the Eurodollar rate plus 2.50%per year. If any default were to exist under the revolving credit facility andfor so long as such default were to continue, at the option of the agent orlenders, the monthly fee on outstanding standby letters of credit may increaseto 3.25% per year, interest on the revolving loans may increase to 3.25% peryear above the Eurodollar rate for Eurodollar rate loans and 2.00% per year abovethe Prime rate for all Prime rate loans, and interest on the term loan mayincrease to the Eurodollar rate plus 4.50% per year.

The Company’s credit facilities contain certaincovenants, including restrictions on the Company’s ability to pay dividends onits common stock, incur additional indebtedness and to prepay, redeem, defeaseor purchase other debt. Subject to such restrictions, the Company may incurmore debt for working capital, capital expenditures, stock repurchases,acquisitions and for other purposes. The terms of the Company’s 

9

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) August 4, 2007 (Unaudited)**

**8.**   Long-Term Debt and Credit Facilities (Continued)

credit facilities alsosubject it to certain maintenance covenants until the Company’s existing termloan is paid in full, which require the Company to maintain a fixed chargecoverage ratio of not less than 1.00 to 1.00 and a leverage ratio of notgreater than 2.75 to 1.00. Should the Company fully repay its existing termloan, the Company will no longer be subject to the maximum leverage ratio andwill only be subject to the minimum fixed charge coverage ratio in the eventthat the Company’s borrowing availability under its revolving credit facilityfalls below $10.0 million. In addition, in the event that the Company’sborrowing availability under its revolving credit facility, plus cash on-hand,falls below $50.0 million and the Company fails to maintain a minimum trailingtwelve-month EBITDA, then the outstanding principal amount of the Company’sexisting term loan must be prepaid down to $25.0 million, subject to certainrestrictions. These ratios and the calculation of EBITDA, as defined under theCompany’s Loan Agreement, are not necessarily comparable to other similarlytitled ratios and measurements of other companies due to inconsistencies in themethod of calculation. The Company is currently in compliance with thefinancial covenants referred to above.

The lenders have beengranted a pledge of the common stock of Lerner Holding and certain of itssubsidiaries, and a first priority security interest in substantially all othertangible and intangible assets of New York & Company, Inc. and itssubsidiaries, as collateral for the Company’s obligations under the creditfacilities. In addition, New York & Company, Inc. and certain ofits subsidiaries have fully and unconditionally guaranteed the creditfacilities, and such guarantees are joint and several.

**9.**   NewAccounting Pronouncements

In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes—an interpretation of FASB Statement No. 109.” This Interpretationclarifies the accounting for uncertain tax positions recognized in a company’sfinancial statements in accordance with the provisions of FASB Statement No. 109,“Accounting for Income Taxes.” This Interpretation prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.This Interpretation also provides guidance on derecognition of uncertainpositions, financial statement classification, accounting for interest andpenalties, accounting in interim periods, disclosure, and transition. ThisInterpretation is effective for fiscal years beginning after December 15,2006. The Company adopted the provisions of this Interpretation on February 4,2007, as described further in footnote 7, “Income Taxes” in these Notes toCondensed Consolidated Financial Statements.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishesa common definition for fair value to be applied to US GAAP guidance requiringthe use of fair value, establishes a framework for measuring fair value, andexpands the disclosure about such fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years. The Company is currently evaluating theimpact, if any, that the adoption of this Statement will have on its financialposition and results of operations.

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) August 4, 2007 (Unaudited)**

**9.**   New Accounting Pronouncements (Continued)

In September 2006,the FASB issued SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans, an amendment of FASB statementsNo. 87, 88, 106, and 132(R)” (“SFAS No. 158”). SFAS No. 158requires recognition of the overfunded or underfunded status of defined benefitpostretirement plans as an asset or liability in the statement of financialposition and requires companies to recognize changes in that funded status incomprehensive income in the year in which the changes occur. SFAS No. 158also requires measurement of the funded status of a plan as of the date of thestatement of financial position. SFAS No. 158 is effective for recognitionof the funded status of benefit plans for fiscal years ending after December 15,2006 and is effective for the measurement date provisions for fiscal yearsending after December 15, 2008. The adoption of the recognition provisionsof this Statement at February 3, 2007 did not have an impact on theCompany’s financial position and results of operations. The Company does notanticipate that the adoption of the measurement date provisions of thisStatement will have a material impact on its financial position and results ofoperations.

**10.**   SubsequentEvent

On August 22, 2007, Lerner New York, Inc.,Lernco, Inc. and Jasmine Company, Inc. entered into the LoanAgreement, which amended and restated the Existing Agreement. The terms of thisLoan Agreement are set forth in footnote 8, “Long-Term Debt and CreditFacilities” in these Notes to Condensed Consolidated Financial Statements.

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**ITEM 2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS**

**(CautionaryStatements Under the Private Securities Litigation Reform Act of 1995)**

This QuarterlyReport on Form 10-Q includes forward-looking statements.Certain matters discussed in “Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and other sections of thisQuarterly Report on Form 10-Q are forward-looking statementsintended to qualify for safe harbors from liability established by the PrivateSecurities Litigation Reform Act of 1995. Some of these statements can beidentified by terms and phrases such as ‘‘anticipate,’’ ‘‘believe,’’ ‘‘intend,’’‘‘estimate,’’ ‘‘expect,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘project,’’‘‘predict’’ and similar expressions and include references to assumptions thatthe Company believes are reasonable and relate to its future prospects,developments and business strategies. Factors that could cause the Company’sactual results to differ materially from those expressed or implied in suchforward-looking statements, include, but are not limited to those discussedunder the heading “Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk” in this Quarterly Report on Form 10-Q and:

·       theCompany’s ability to open and operate stores successfully and the possible lackof availability of suitable store locations on acceptable terms;

·       seasonalfluctuations in the Company’s business;

·       theCompany’s ability to anticipate and respond to fashion trends, develop newmerchandise and launch new product lines successfully;

·       generaleconomic conditions, consumer confidence and spending patterns;

·       theCompany’s dependence on mall traffic for its sales;

·       theCompany’s dependence on the success of its brand;

·       competitionin the Company’s market, including promotional and pricing competition;

·       theCompany’s reliance on the effective use of customer information;

·       theCompany’s ability to service any debt it incurs from time to time as well asits ability to maintain the requirements that the agreements related to suchdebt impose upon the Company;

·       thesusceptibility of the Company’s business to extreme and/or unseasonable weatherconditions;

·       theCompany’s ability to retain, recruit and train key personnel;

·       theCompany’s reliance on third parties to manage some aspects of its business;

·       changesin the cost of raw materials, distribution services or labor, including federaland state minimum wage rates;

·       thepotential impact of national and international security concerns on the retailenvironment, including any possible military action, terrorist attacks or otherhostilities;

·       theCompany’s reliance on foreign sources of production, including the disruptionof imports by labor disputes, political instability, legal and regulatorymatters, duties, taxes, other charges and quotas on imports, local businesspractices, potential delays in shipping and related pricing impacts andpolitical issues and fluctuation in currency and exchange rates;

·       thepotential impact of natural disasters and health concerns relating to outbreaksof widespread diseases, particularly on manufacturing operations of the Company’svendors;

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·       theability of the Company’s manufacturers to manufacture and deliver products in atimely manner while meeting its quality standards;

·       theCompany’s ability to successfully integrate acquired businesses into itsexisting business;

·       theCompany’s reliance on manufacturers to maintain ethical business practices;

·       theCompany’s ability to protect its trademarks and other intellectual propertyrights;

·       theCompany’s ability to maintain, and its reliance on, its information systemsinfrastructure;

·       theeffects of government regulation;

·       thecontrol of the Company by its sponsors; and

·       risksand uncertainties as described in the Company’s documents filed with the SEC,including its Annual Report on Form 10-K, as filed on April 6,2007.

The Company undertakes noobligation to revise the forward-looking statements included in thisQuarterly Report on Form 10-Q to reflect any future events orcircumstances. The Company’s actual results, performance or achievements coulddiffer materially from the results expressed or implied by these forward-lookingstatements.

**Overview**

The Company is a leading specialty retailer offashion-oriented, moderately-priced women’s apparel. The Company designs andsources its proprietary branded *New York &Company* merchandise sold exclusively through its national network ofNew York & Company retail stores and on-line at www.nyandcompany.com.The target customers for the Company’s *New York &Company* merchandise are fashion-conscious, value-sensitive womenbetween the ages of 25 and 45. On July 19, 2005, the Company acquiredJasmineSola, a Boston-based, privately held women’s retailer of upscale andcontemporary apparel, footwear and accessories sold through its chain of *JasmineSola* branded retail stores. As of August 4, 2007,the Company operated 580 retail stores in 44 states, including 23 JasmineSolastores.

The Company views the retail apparel market as havingtwo principal selling seasons: spring (first and second quarter) and fall(third and fourth quarter). The Company’s business experiences seasonalfluctuations in net sales and operating income, with a significant portion ofits operating income typically realized during fourth quarter. Seasonalfluctuations also affect inventory levels. The Company must carry a significantamount of inventory, especially before the holiday season selling period.

Net sales for the three months ended August 4,2007 increased 11.2% to $294.4 million, as compared to$264.9 million for the three months ended July 29, 2006. Net salesfor the six months ended August 4, 2007 increased 8.7% to $578.4 million,as compared to $532.0 million for the six months ended July 29, 2006.Comparable store sales increased 4.7% for the three months ended August 4,2007, as compared to a comparable store sales decrease of 4.0% for the threemonths ended July 29, 2006. Comparable store sales increased 1.7% for thesix months ended August 4, 2007, as compared to a comparable store salesdecrease of 6.7% for the six months ended July 29, 2006. Net income for thethree months ended August 4, 2007 decreased to $3.5 million, or$0.06 per diluted share, as compared to $6.5 million, or$0.11 per diluted share, for the three months ended July 29, 2006.Net income for the six months ended August 4, 2007 decreased to $4.3million, or $0.07 per diluted share, as compared to $12.6 million, or$0.21 per diluted share, for the six months ended July 29, 2006. Fora discussion of the more significant factors impacting these results, see “Resultsof Operations” below.

Capital spending for the six months ended August 4,2007 was $35.6 million, as compared to $38.1 million for the sixmonths ended July 29, 2006. The $35.6 million of capital spendingrepresents $32.8 million related to the construction of new stores and theremodeling of existing stores and 

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$2.8 million relatedto non-store capital projects, which principally represent informationtechnology enhancements. During the six months ended August 4, 2007, theCompany opened 25 new stores, closed five stores and completed 14 remodels,ending the period operating 580 stores, as compared to 537 stores asof July 29, 2006. During the six months ended July 29, 2006, theCompany opened 24 new stores, closed six stores and remodeled 19 stores. Totalselling square footage as of August 4, 2007 was 3.357 million,as compared to 3.280 million as of July 29, 2006.

The Company’s business isimpacted by economic conditions which affect the level of consumer spending onthe merchandise the Company offers. These economic factors include interestrates, economic growth, wage rates, unemployment levels, energy prices,consumer confidence and consumer spending, among others. Consumer preferences,competition and economic conditions may change from time to time in the marketsin which the Company operates and may negatively impact the Company’s netsales, profitability and future growth and expansion plans. As these economicconditions change, there can be no assurance that future trends andfluctuations in economic factors will not have a material adverse effect on theCompany’s financial condition and results of operations. The Company’s strategyis to focus on its customers, current fashion trends, merchandise testing,value pricing and responsive inventory management to enable it to react tochanges as they occur.

***General***

*NetSales.**  *Net sales consist of sales from comparableand non-comparable stores and the Company’s e-commerce website. A store isincluded in the comparable store sales calculation after it has completed 13full fiscal months of operation from the store’s original opening date or onceit has been reopened after remodeling. Non-comparable store sales includestores which have not completed 13 full fiscal months of operations, sales fromclosed stores, and sales from stores closed or in temporary locations duringperiods of remodeling. In addition, in a year with 53 weeks, sales in the lastweek of the year are not included in determining comparable store sales. Netsales from the sale of merchandise at the Company’s stores are recognized whenthe customer takes possession of the merchandise and the purchases are paidfor, primarily with either cash or credit card. Net sales from the sale ofmerchandise on the Company’s e-commerce website are recognized when themerchandise is shipped to the customer. A reserve is provided for projectedmerchandise returns based on prior experience.

The Company issues gift cards which do not containprovisions for expiration or inactivity fees. The portion of the dollar valueof gift cards that ultimately is not used by customers to make purchases isknown as breakage. The Company estimates gift card breakage and records suchamounts as revenues as gift cards are redeemed. The Company’s estimate of giftcard breakage is based on analysis of historical redemption patterns as well asthe remaining balance of gift cards for which the Company believes thelikelihood of redemption to be remote.

*Costof Goods Sold, Buying and Occupancy Costs.**  *Costof goods sold, buying and occupancy costs is comprised of direct inventorycosts for merchandise sold, distribution, payroll and related costs for design,sourcing, production, merchandising, planning and allocation personnel, andstore occupancy and related costs.

*GrossProfit.**  *Gross profit represents net sales lesscost of goods sold, buying and occupancy costs.

*Selling, General andAdministrative Expenses.**  *Selling, general andadministrative expenses include selling, store management and corporate expenses,including payroll and employee benefits, employment taxes, managementinformation systems, marketing, insurance, legal, store pre-opening and othercorporate level expenses. Store pre-opening expenses include store levelpayroll, grand opening event marketing, travel, supplies and other storeopening expenses.

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**Results ofOperations**

Thefollowing tables summarize the Company’s results of operations as a percentageof net sales and selected store operating data for the three and six monthsended August 4, 2007 and July 29, 2006:

| ** **                                      | ** ** | **Three months  ended  August 4, 2007** | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net sales                                       |       |                                                   | 100.0      | %                                                     |       |                                                 | 100.0      | %                                                   |       |   | 100.0 | % |   |   | 100.0 | % |   |
| Cost of goods  sold, buying and occupancy costs |       |                                                   | 73.2       | %                                                     |       |                                                 | 71.5       | %                                                   |       |   | 72.8 | % |   |   | 70.9 | % |   |
| Gross profit                                    |       |                                                   | 26.8       | %                                                     |       |                                                 | 28.5       | %                                                   |       |   | 27.2 | % |   |   | 29.1 | % |   |
| Selling, general  and administrative expenses   |       |                                                   | 24.7       | %                                                     |       |                                                 | 24.2       | %                                                   |       |   | 25.9 | % |   |   | 25.0 | % |   |
| Operating income                                |       |                                                   | 2.1        | %                                                     |       |                                                 | 4.3        | %                                                   |       |   | 1.3 | % |   |   | 4.1 | % |   |
| Interest expense,  net                          |       |                                                   | 0.1        | %                                                     |       |                                                 | 0.2        | %                                                   |       |   | 0.1 | % |   |   | 0.2 | % |   |
| Income before income taxes                      |       |                                                   | 2.0        | %                                                     |       |                                                 | 4.1        | %                                                   |       |   | 1.2 | % |   |   | 3.9 | % |   |
| Provision for  income taxes                     |       |                                                   | 0.8        | %                                                     |       |                                                 | 1.6        | %                                                   |       |   | 0.5 | % |   |   | 1.5 | % |   |
| Net income                                      |       |                                                   | 1.2        | %                                                     |       |                                                 | 2.5        | %                                                   |       |   | 0.7 | % |   |   | 2.4 | % |   |

 

| ** **                                    | ** ** | **Three months  ended  August 4, 2007**                            | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **(Dollars in thousands, except square foot data)** | ** ** |
| **Selected operating data:**                  |       |                                                                              |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Total net sales  growth                       |       |                                                                              | 11.2       | %                                                     |       |                                                 | 4.0        | %                                                   |       |   | 8.7 | % |   |   | 1.4 | % |   |
| Comparable store  sales increase (decrease)   |       |                                                                              | 4.7        | %                                                     |       |                                                 | (4.0       | )%                                                  |       |   | 1.7 | % |   |   | (6.7 | )% |   |
| Net sales per  average selling square foot(1) |       |                                                                              | $          | 88                                                    |       |                                                 |       | $                                                   | 81         |   |   |   | $ | 173 |   |   |   | $ | 163 |   |   |
| Net sales per  average store(2)               |       |                                                                              | $          | 512                                                   |       |                                                 |       | $                                                   | 496        |   |   |   | $ | 1,015 |   |   |   | $ | 1,008 |   |   |
| Average selling square  footage per store(3)  |       |                                                                              | 5,789      |                                                  |       |                                                 | 6,108      |                                                |       |   | 5,789 |   |   |   | 6,108 |   |   |

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(1)          Net sales per averageselling square foot is defined as net sales divided by the average of beginningand end of period selling square feet.

(2)          Net sales per averagestore is defined as net sales divided by the average of beginning and end ofperiod number of stores.

(3)          Averageselling square footage per store is defined as end of period selling squarefeet divided by end of period number of stores.

| ** **                                             | ** ** | **Three months  ended  August 4, 2007** | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                             | ** ** | **Store  Count**                                       | ** ** | **Selling  Square Feet**                         | ** ** | **Store  Count**                                     | ** ** | **Selling  Square Feet**                       | ** ** | **Store  Count** | ** ** | **Selling  Square Feet** | ** ** | **Store  Count** | ** ** | **Selling  Square Feet** | ** ** |
| **Store count and selling  square feet:**         |       |                                                   |       |                                                  |       |                                                 |       |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stores open, beginning of  period                      |       |                                                   | 569        |                                                  |       |                                                 | 3,352,471  |                                                |       |   | 530 |   |   |   | 3,282,333 |   |   |   | 560 |   |   |   | 3,313,437 |   |   |   | 519 |   |   |   | 3,254,465 |   |   |
| New stores                                             |       |                                                   | 14         |                                                  |       |                                                 | 58,167     |                                                |       |   | 10 |   |   |   | 43,317 |   |   |   | 25 |   |   |   | 110,464 |   |   |   | 24 |   |   |   | 107,629 |   |   |
| Closed stores                                          |       |                                                   | (3         | )                                                     |       |                                                 | (23,535    | )                                                   |       |   | (3 | ) |   |   | (17,409 | ) |   |   | (5 | ) |   |   | (36,798 | ) |   |   | (6 | ) |   |   | (35,556 | ) |   |
| Net impact of  remodeled stores on selling square feet |       |                                                   | —     |                                                  |       |                                                 | (29,737    | )                                                   |       |   | — |   |   |   | (28,166 | ) |   |   | — |   |   |   | (29,737 | ) |   |   | — |   |   |   | (46,463 | ) |   |
| Stores open, end  of period                            |       |                                                   | 580        |                                                  |       |                                                 | 3,357,366  |                                                |       |   | 537 |   |   |   | 3,280,075 |   |   |   | 580 |   |   |   | 3,357,366 |   |   |   | 537 |   |   |   | 3,280,075 |   |   |

 

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***Three Months Ended August 4, 2007 Comparedto Three Months Ended July 29, 2006***

*NetSales.**  *Netsales for the three months ended August 4, 2007 increased 11.2% to$294.4 million, as compared to $264.9 million for the three months ended July 29,2006. The increase is primarily driven by a 4.7% increase in comparable storesales for the three months ended August 4, 2007, as compared to a decreaseof 4.0% for the three months ended July 29, 2006. Also contributingto the increase in net sales are sales from new stores not yet included in thecomparable store base. In the comparable store base, average dollar sales pertransaction increased by 4.1% and the number of transactions per average storeincreased by 0.6%, as compared to the same period last year.

*GrossProfit.**  *Grossprofit increased $3.3 million to $78.8 million, or 26.8% of netsales, for the three months ended August 4, 2007, as compared to$75.6 million, or 28.5% of net sales, for the three months ended July 29,2006. As a percentage of net sales, gross profit decreased for the three monthsended August 4, 2007, due in large part to a decrease in merchandisemargin in both the *New York &Company* and *JasmineSola*brands. While apparel margins for the *New York &Company* brand remained stable, as compared to last year, a decreasein accessory sales and increased accessory markdowns led to a decrease inmerchandise margin for the Company. In addition, buying and occupancy costs forthe Company increased slightly as a percentage of net sales primarily due to increasesin real estate costs related to new and remodeled stores.

*Selling,General and Administrative Expenses.**  *Selling, general and administrativeexpenses increased $8.6 million to $72.8 million, or 24.7% of netsales, for the three months ended August 4, 2007, as compared to$64.2 million, or 24.2% of net sales, for the three months ended July 29,2006. The increase as a percentage of net sales during the three months ended August 4,2007, as compared to the three months ended July 29, 2006, is primarilydue to higher store selling expenses resulting from an increase in wage ratesand store labor support partially offset by improved leverage on corporateexpenses.

*OperatingIncome.**  *Forthe reasons discussed above, operating income decreased $5.3 million to$6.1 million, or 2.1% of net sales, for the three months ended August 4,2007, as compared to $11.4 million, or 4.3% of net sales, for the threemonths ended July 29, 2006.

*InterestExpense, Net.**  *Netinterest expense decreased $0.3 million to $0.2 million for thethree months ended August 4, 2007, as compared to $0.5 million forthe three months ended July 29, 2006. The decrease in net interest expensefor the three months ended August 4, 2007, as compared to the three monthsended July 29, 2006, is primarily related to a decrease in borrowings andfluctuations in interest rates.

*Provisionfor Income Taxes.**  *Theeffective tax rate for the three months ended August 4, 2007 was40.2%, as compared to 40.4% for the three months ended July 29, 2006.

*Net Income.**  *For the reasons discussed above,net income decreased $3.0 million to $3.5 million, or 1.2% of netsales, for the three months ended August 4, 2007, as compared to$6.5 million, or 2.5% of net sales, for the three months ended July 29,2006.

***Six Months Ended August 4, 2007 Compared toSix Months Ended July 29, 2006***

*NetSales.**  *Net sales for the six months ended August 4,2007 increased 8.7% to $578.4 million, as compared to $532.0 millionfor the six months ended July 29, 2006. The increase is primarily drivenby an 1.7% increase in comparable store sales for the six months ended August 4,2007, as compared to a 6.7% decrease for the six months ended July 29,2006. Also contributing to the increase in net sales are sales from new storesnot yet included in the comparable store base. In the comparable store base,average dollar sales per transaction increased by 0.3% and the number oftransactions per average store increased by 1.4%, as compared to the sameperiod last year.

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*GrossProfit.**  *Gross profit increased $2.6 millionto $157.3 million, or 27.2% of net sales, for the six months ended August 4,2007, as compared to $154.7 million, or 29.1% of net sales, for thesix months ended July 29, 2006. As a percentage of net sales, gross profitdecreased for the six months ended August 4, 2007, due in large part to adecrease in merchandise margin in both the *New York &Company* and *JasmineSola*brands. While apparel margins for the *New York & Company*brand remained stable, as compared to last year, a decrease in accessory salesand increased accessory markdowns led to a decrease in merchandise margin forthe Company. Also contributing to the decrease in merchandise margin was $1.8million of charges incurred during the first three months of fiscal year 2007in connection with the liquidation of inventory resulting from the terminationof a JasmineSola lease and the exiting of that store, coupled with an overallmodification of the JasmineSola closeout strategy. In addition, buying andoccupancy costs for the Company increased as a percentage of net salesprimarily due to low comparable store sales and increases in real estate costsrelated to new and remodeled stores.

*Selling,General and Administrative Expenses.**  *Selling,general and administrative expenses increased $16.9 million to$149.6 million, or 25.9% of net sales, for the six months ended August 4,2007, as compared to $132.7 million, or 25.0% of net sales, for the sixmonths ended July 29, 2006. The increase as a percentage of net salesduring the six months ended August 4, 2007, as compared to the six monthsended July 29, 2006, is primarily due to $3.3 million of expenses,primarily legal costs, incurred in connection with the completion of thearbitration proceeding related to the JasmineSola Stock Purchase Agreement in April 2007.Also contributing to the increase in selling, general and administrativeexpenses as a percentage of net sales, as compared to last year, was anincrease in store selling expenses resulting from an increase in wage rates andstore labor support.

*OperatingIncome.*   For the reasons discussed above, operatingincome decreased $14.3 million to $7.7 million, or 1.3% of net sales,for the six months ended August 4, 2007, as compared to $22.0 million,or 4.1% of net sales, for the six months ended July 29, 2006.

*InterestExpense, Net.*   Net interest expense decreased$0.5 million to $0.5 million for the six months ended August 4, 2007, ascompared to $1.0 million for the six months ended July 29, 2006. Thedecrease in net interest expense for the six months ended August 4, 2007,as compared to the six months ended July 29, 2006, is primarily related toa decrease in borrowings and fluctuations in interest rates.

*Provisionfor Income Taxes.*   The effective tax rate for thesix months ended August 4, 2007 was 40.2%, as compared to 40.3% forthe six months ended July 29 2006.

*Net Income.*   Forthe reasons discussed above, net income decreased $8.3 million to$4.3 million, or 0.7% of net sales, for the six months ended August 4,2007, as compared to $12.6 million, or 2.4% of net sales, for the sixmonths ended July 29, 2006.

**Non-GAAP FinancialMeasure**

The Company has provided anon-GAAP financial measure to adjust net income for the three and six monthsended August 4, 2007 and July 29, 2006. This information reflects, ona non-GAAP adjusted basis, the Company’s net income before interest expense,net; provision for income taxes; and depreciation and amortization (“EBITDA”).The calculation for EBITDA is provided to enhance the user’s understanding ofthe Company’s operating results. EBITDA is provided because management believesit is an important measure of financial performance commonly used to determinethe value of companies and to define standards for borrowing from institutionallenders. The non-GAAP financial information should be considered in additionto, not as an alternative to, net income, as an indicator of the Company’soperating performance, and cash flows from operating activities, as a measureof the Company’s liquidity, as determined in accordance with accountingprinciples generally accepted in the United States. The Company may calculateEBITDA differently than other companies.

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**Reconciliationof Net Income to EBITDA**

| ** **                    | ** ** | **Three months ended  August 4, 2007** | ** ** | **Three months ended  July 29, 2006** | ** ** | **Six months ended  August 4, 2007** | ** ** | **Six months ended  July 29, 2006** | ** ** |
|-------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                    | ** ** | **Amounts  in  thousands**                            | ** ** | **As a  % of   net sales**       | ** ** | **Amounts  in  thousands**                          | ** ** | **As a   % of  net sales**     | ** ** | **Amounts  in  thousands** | ** ** | **As a   % of  net sales** | ** ** | **Amounts  in  thousands** | ** ** | **As a  % of  net sales** | ** ** |
| Net income                    |       |                                                  | $          | 3,499                                                |       |                                                |       | 1.2                                                | %          |   |   | $ | 6,499 |   |   |   | 2.5 | % |   |   | $ | 4,301 |   |   |   | 0.7 | % |   |   | $ | 12,556 |   |   |   | 2.4 | % |   |
| Add back:                     |       |                                                  |       |                                                 |       |                                                |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense,  net        |       |                                                  | 219        |                                                 |       |                                                | 0.1        | %                                                  |       |   | 477 |   |   |   | 0.2 | % |   |   | 480 |   |   |   | 0.1 | % |   |   | 967 |   |   |   | 0.2 | % |   |
| Provision for  income taxes   |       |                                                  | 2,354      |                                                 |       |                                                | 0.8        | %                                                  |       |   | 4,405 |   |   |   | 1.6 | % |   |   | 2,892 |   |   |   | 0.5 | % |   |   | 8,477 |   |   |   | 1.5 | % |   |
| Depreciation and amortization |       |                                                  | 10,065     |                                                 |       |                                                | 3.4        | %                                                  |       |   | 7,975 |   |   |   | 3.0 | % |   |   | 19,115 |   |   |   | 3.3 | % |   |   | 15,651 |   |   |   | 2.9 | % |   |
| EBITDA                        |       |                                                  | $          | 16,137                                               |       |                                                |       | 5.5                                                | %          |   |   | $ | 19,356 |   |   |   | 7.3 | % |   |   | $ | 26,788 |   |   |   | 4.6 | % |   |   | $ | 37,651 |   |   |   | 7.0 | % |   |

 

**Liquidity andCapital Resources**

The Company’s primary uses of cash are to fund workingcapital, operating expenses, debt service and capital expenditures relatedprimarily to the construction of new stores, remodeling of existing stores anddevelopment of the Company’s information systems infrastructure. Historically,the Company has financed these requirements from internally generated cashflow. The Company intends to fund its ongoing capital and working capitalrequirements, as well as debt service obligations, primarily through cash flowsfrom operations, supplemented by borrowings under its credit facilities, ifneeded. The Company is in compliance with all debt covenants as of August 4,2007.

Thefollowing tables contain information regarding the Company’s liquidity andcapital resources:

| ** **                 | ** ** | **August 4,  2007**             | ** ** | **February 3,  2007** | ** ** | **July 29,  2006** | ** ** |
|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                 | ** ** | **(Amounts in thousands)** | ** ** |
| Cash and cash  equivalents |       | $                                    | 27,749     |                       |       | $                       | 68,064     |   |   | $ | 36,888 |   |
| Working capital            |       | $                                    | 70,993     |                       |       | $                       | 69,964     |   |   | $ | 53,312 |   |

 

| ** **                                           | ** ** | **Six months  ended  August 4, 2007** | ** ** | **Six months  ended  July 29, 2006** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **(Amounts in thousands)**                 | ** ** |
| Net cash (used  in) provided by operating activities |       |                                                 | $          | (5,015                                              | )          |   |   | $ | 11,921 |   |   |
| Net cash used in  investing activities               |       |                                                 | $          | (35,638                                             | )          |   |   | $ | (38,057 | ) |   |
| Net cash provided by  financing activities           |       |                                                 | $          | 338                                                 |       |   |   | $ | 5,588 |   |   |

 

**OperatingActivities**

Net cash used in operatingactivities was $5.0 million for the six months ended August 4, 2007,as compared to net cash provided by operating activities of $11.9 millionfor the six months ended July 29, 2006. The change in cash flow fromoperating activities for the six months ended August 4, 2007, ascompared to the six months July 29, 2006, is primarily related to thedecrease in net income, and changes in inventories, prepaid expenses, accruedexpenses, income taxes payable, and deferred rent, partially offset by changesin accounts receivable, accounts payable, and other assets and liabilities.

**InvestingActivities**

Net cash used in investing activities was $35.6 millionfor the six months ended August 4, 2007, as compared to$38.1 million of net cash used in investing activities for the six monthsended July 29, 2006. 

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The $35.6 million andthe $38.1 million reflect capital expenditures primarily related to the constructionof new stores and the remodeling of existing stores.

The Company opened25 new stores and completed 14 remodels in the six months ended August 4,2007, as compared to 24 new stores and 19 remodels in the six months ended July 29,2006. The Company currently plans to open 50 to 60 stores, close approximately11 stores and remodel 25 to 30 stores in fiscal year 2007, ending the fiscalyear with 599 to 609 stores. The Company’s future capital requirements willdepend primarily on the number of new stores it opens, the number of existingstores it remodels and the timing of these expenditures.

**FinancingActivities**

Net cash provided byfinancing activities was $0.3 million for the six months ended August 4,2007, as compared to net cash provided by financing activities of$5.6 million for the six months ended July 29, 2006. Net cashprovided by financing activities for the six months ended August 4,2007 primarily consists of quarterly payments against the January 4,2006 term loan totaling $3.0 million and $3.4 million of proceedsfrom the exercise of stock options and the related excess tax benefit to theCompany. Net cash provided by financing activities for the six months ended July 29,2006 represents proceeds of $2.3 million from the public offering ofcommon stock, consummated on January 31, 2006; the payment of $0.4 millionin fees and expenses related to the offering; quarterly payments against the January 4,2006 term loan totaling $3.0 million; and $6.7 million of proceedsfrom the exercise of stock options and the related excess tax benefit to theCompany.

**Long-Term Debt andCredit Facilities**

On August 22, 2007, Lerner New York, Inc.,Lernco, Inc. and Jasmine Company, Inc. entered into the LoanAgreement, which amended and restated the Existing Agreement. Seefootnote 8, “Long-Term Debt and Credit Facilities” in the Notes toCondensed Consolidated Financial Statements.

The amendments to the Existing Agreement provide for,among other things: (i) an extension of the term of the Company’s existing$90.0 million revolving credit facility and existing $37.5 millionterm loan to March 17, 2012; (ii) a reduction of certain interestrates and fees under the revolver; (iii) a change in the borrowing basecalculation under the Existing Agreement providing additional availability; (iv) thereduction of restrictions on, among other things, incurring indebtedness,transactions with affiliates, investments, stock repurchases, and sales ofassets; and (v) the elimination of a minimum EBITDA covenant and theaddition of a minimum fixed charge coverage ratio, as described further below.

The Company’s credit facilities currently consist of a$37.5 million term loan, of which $28.5 million was outstanding at August 4,2007, and a $90.0 million revolving credit facility (which includes asub-facility available for issuance of letters of credit of up to $75.0 million),both having a maturity date of March 17, 2012.

As of August 4, 2007, the Company hadavailability under its revolving credit facility, as amended by the LoanAgreement, of $66.1 million, net of letters of credit outstanding of$6.9 million, as compared to availability of $44.7 million, net ofletters of credit outstanding of $9.7 million, as of July 29, 2006.

The revolving loans under the credit facilities bearinterest, at the Company’s option, either at a floating rate equal to theEurodollar rate plus a margin of between 1.00% and 1.25% per year, dependingupon the Company’s financial performance, or the Prime rate. The Company paysthe lenders under the revolving credit facility a monthly fee on outstandingcommercial letters of credit at a rate of 0.625% per year and on standbyletters of credit at a rate of between 1.00% and 1.25% per year, depending uponthe Company’s financial performance, plus a monthly fee on a proportion of theunused commitments under that facility at a rate of 0.20% per year. The termloan bears interest at a floating rate equal to the 

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Eurodollar rate plus 2.50%per year. If any default were to exist under the revolving credit facility andfor so long as such default were to continue, at the option of the agent orlenders, the monthly fee on outstanding standby letters of credit may increaseto 3.25% per year, interest on the revolving loans may increase to 3.25% peryear above the Eurodollar rate for Eurodollar rate loans and 2.00% per yearabove the Prime rate for all Prime rate loans, and interest on the term loanmay increase to the Eurodollar rate plus 4.50% per year.

The Company’s credit facilities contain certaincovenants, including restrictions on the Company’s ability to pay dividends onits common stock, incur additional indebtedness and to prepay, redeem, defeaseor purchase other debt. Subject to such restrictions, the Company may incur moredebt for working capital, capital expenditures, stock repurchases, acquisitionsand for other purposes. The terms of the Company’s credit facilities alsosubject it to certain maintenance covenants until the Company’s existing termloan is paid in full, which require the Company to maintain a fixed chargecoverage ratio of not less than 1.00 to 1.00 and a leverage ratio of notgreater than 2.75 to 1.00. Should the Company fully repay its existing termloan, the Company will no longer be subject to the maximum leverage ratio andwill only be subject to the minimum fixed charge coverage ratio in the eventthat the Company’s borrowing availability under its revolving credit facilityfalls below $10.0 million. In addition, in the event that the Company’sborrowing availability under its revolving credit facility, plus cash on-hand,falls below $50.0 million and the Company fails to maintain a minimumtrailing twelve-month EBITDA, then the outstanding principal amount of the Company’sexisting term loan must be prepaid down to $25.0 million, subject tocertain restrictions. These ratios and the calculation of EBITDA, as definedunder the Company’s Loan Agreement, are not necessarily comparable to othersimilarly titled ratios and measurements of other companies due toinconsistencies in the method of calculation. The Company is currently incompliance with the financial covenants referred to above.

The lenders have beengranted a pledge of the common stock of Lerner Holding and certain of itssubsidiaries, and a first priority security interest in substantially all othertangible and intangible assets of New York & Company, Inc. and itssubsidiaries, as collateral for the Company’s obligations under the creditfacilities. In addition, New York & Company, Inc. and certain ofits subsidiaries have fully and unconditionally guaranteed the creditfacilities, and such guarantees are joint and several.

**Critical AccountingPolicies**

The preparation of financial statements in conformitywith generally accepted accounting principles in the United States requiresmanagement to make estimates and assumptions that impact the amounts reportedon the Company’s consolidated financial statements and related notes. On anongoing basis, management evaluates its estimates and judgments, includingthose related to inventories, long-lived assets, goodwill and other intangibleassets. Management bases its estimate and judgments on historical experienceand various other factors that are believed to be reasonable under thecircumstances. Actual results may differ materially from these judgments.Management believes the following estimates and assumptions are mostsignificant to reporting the Company’s results of operations and financialposition.

*InventoryValuation.**  *Inventoriesare principally valued at the lower of average cost or market, on a weightedaverage cost basis, using the retail method. The Company records a charge tocost of goods sold, buying and occupancy costs for all inventory on-hand when apermanent retail price reduction is reflected in its stores. In addition,management makes estimates and judgments regarding, among other things, initialmarkup, markdowns, future demand and market conditions, all of whichsignificantly impact the ending inventory valuation. If actual future demand ormarket conditions are different than those projected by management, futureperiod merchandise margin rates may be unfavorably or favorably affected. Othersignificant estimates related to inventory include shrink and obsolete andexcess inventory which are also based on historical results and management’soperating projections.

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*Impairmentof Long-Lived Assets.**  *TheCompany evaluates long-lived assets in accordance with SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).Long-lived assets are evaluated for recoverability in accordance withSFAS 144 whenever events or changes in circumstances indicate that anasset may have been impaired. In evaluating an asset for recoverability, theCompany estimates the future cash flow expected to result from the use of theasset and eventual disposition. If the sum of the expected future undiscountedcash flow is less than the carrying amount of the asset, an impairment loss,equal to the excess of the carrying amount over the fair value of the asset, isrecognized. An impairment loss could have a material adverse impact on theCompany’s financial condition and results of operations. The Company’sevaluation for the six months ended August 4, 2007 resulted in nomaterial asset impairment charge.

*Goodwilland Other Intangible Assets.**  *SFAS No. 142, “Goodwill and Other IntangibleAssets,” prohibits the amortization of goodwill and intangible assets withindefinite lives. The Company’s intangible assets relate primarily to the*New York & Company* trademarks,the*JasmineSola* trademarks andgoodwill associated with the acquisition of JasmineSola on July 19, 2005.The trademarks were initially valued using the “relief from royalty method” andwere determined to have indefinite lives by an independent appraiser. Goodwillrepresents the excess of the purchase price over the fair value of the netassets acquired.

The Company tests for impairment of goodwill and otherintangible assets at least annually in the fourth quarter, or more frequentlyif events or circumstances indicate that the asset may be impaired, bycomparing the fair value with the carrying amount for each individual asset.Goodwill impairment is determined using a two-step process. The first step ofthe goodwill impairment test is to identify a potential impairment by comparingthe fair value of a reporting unit with its carrying amount, including thegoodwill assigned to the reporting unit. The estimate of fair value of areporting unit is determined using a discounted cash flow model. If the fairvalue of a reporting unit exceeds its carrying amount, goodwill of thereporting unit is not deemed to be impaired and the second step of theimpairment test is not performed. If the carrying amount of a reporting unitexceeds its fair value, the second step of the goodwill impairment test isperformed to measure the amount of impairment loss, if any. The second step ofthe goodwill impairment test compares the implied fair value of the reportingunit’s goodwill with the carrying amount of that goodwill. If the carryingamount of the reporting unit’s goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recognized in an amount equal to that excess.The implied fair value of goodwill is determined in the same manner as theamount of goodwill recognized in a business combination. In other words, thefair value of the reporting unit is allocated to all of the assets andliabilities of that unit (including any unrecognized intangible assets) as ifthe reporting unit had been acquired in a business combination and the fairvalue of the reporting unit was the purchase price paid to acquire thereporting unit.

The impairment test for other intangible assets notsubject to amortization consists of a comparison of the fair value of theintangible asset with its carrying value. The estimates of fair value ofintangible assets not subject to amortization, specifically trademarks, aredetermined using the “relief from royalty method.” If the carrying value of theintangible asset exceeds its fair value, an impairment loss is recognized in anamount equal to that excess.

The calculation of estimated fair values used in theevaluation of goodwill and other intangible assets requires estimates of futurecash flows, growth rates, discount rates and other variables, that are based onmanagement’s historical experience, knowledge, and market data. If actualexperience differs materially from management’s estimates or if changes instrategic direction occur, an impairment charge may be required. Management’sestimates may be affected by factors such as those outlined in the section ofthis report entitled MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS—SPECIAL NOTE REGARDING FORWARD-LOOKING 

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STATEMENTS AND RISKFACTORS. An impairment loss could have a material adverse impact on the Company’sresults of operations.

*Income Taxes.**  *Income taxes are calculated inaccordance with SFAS No. 109, “Accounting for Income Taxes,” whichrequires the use of the liability method. Deferred tax assets and liabilitiesare recognized based on the difference between the financial statement carryingamounts of assets and liabilities and their respective tax bases. Inherent inthe measurement of deferred balances are certain judgments and interpretationsof enacted tax laws and published guidance with respect to applicability to theCompany’s operations. Deferred tax assets are believed to be fully realizableas management expects future taxable income will be sufficient to recover theasset values and, as such, no related valuation allowance has been providedfor. The Company adopted the provisions of FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”on February 4, 2007, as described further in footnote 7, “IncomeTaxes” in the Notes to Condensed Consolidated Financial Statements.

**Adoption of NewAccounting Standards**

In June 2006, the FASB issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes—an interpretation of FASB StatementNo. 109.” This Interpretation clarifies the accounting for uncertain taxpositions recognized in a company’s financial statements in accordance with theprovisions of FASB Statement No. 109, “Accounting for Income Taxes.” ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This Interpretation also providesguidance on derecognition of uncertain positions, financial statementclassification, accounting for interest and penalties, accounting in interimperiods, disclosure, and transition. This Interpretation is effective forfiscal years beginning after December 15, 2006. The Company adopted theprovisions of this Interpretation on February 4, 2007, as describedfurther in footnote 7, “Income Taxes” in the Notes to CondensedConsolidated Financial Statements.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements.” SFAS No. 157 establishes a common definitionfor fair value to be applied to US GAAP guidance requiring the use of fairvalue, establishes a framework for measuring fair value, and expands thedisclosure about such fair value measurements. SFAS No. 157 is effectivefor fiscal years beginning after November 15, 2007, and interim periodswithin those fiscal years. The Company is currently evaluating the impact, ifany, that the adoption of this Statement will have on its financial positionand results of operations.

In September 2006,the FASB issued SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans, an amendment of FASB statements No. 87,88, 106, and 132(R).” SFAS No. 158 requires recognition of the overfundedor underfunded status of defined benefit postretirement plans as an asset orliability in the statement of financial position and requires companies torecognize changes in that funded status in comprehensive income in the year inwhich the changes occur. SFAS No. 158 also requires measurement of thefunded status of a plan as of the date of the statement of financial position.SFAS No. 158 is effective for recognition of the funded status of benefitplans for fiscal years ending after December 15, 2006 and is effective forthe measurement date provisions for fiscal years ending after December 15,2008. The adoption of the recognition provisions of this Statement at February 3,2007 did not have an impact on the Company’s financial position and results ofoperations. The Company does not anticipate that the adoption of themeasurement date provisions of this Statement will have a material impact onits financial position and results of operations.

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**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

*InterestRates.**  *TheCompany’s market risks relate primarily to changes in interest rates. TheCompany’s credit facilities carry floating interest rates that are tied to theEurodollar rate and the Prime rate and therefore, the consolidated statementsof income and the consolidated statements of cash flows will be exposed tochanges in interest rates. A 1.0% interest rate increase would increaseinterest expenses by approximately $0.3 million annually. The Companyhistorically has not engaged in interest rate hedging activities.

*Currency Exchange Rates.**  *The Company historically has notbeen exposed to currency exchange rate risks with respect to inventorypurchases as such expenditures have been, and continue to be, denominated inU.S. Dollars. The Company purchases some of its inventory from suppliers inChina, for which the Company pays U.S. Dollars. Since July 2005, China hasbeen slowly increasing the value of the Chinese Yuan, which is now linked to abasket of world-currencies. If the exchange rate of the Chinese Yuan to theU.S. Dollar continues to increase, the Company may experience fluctuations inthe cost of inventory purchased from China and the Company would adjust itssupply chain accordingly.

**ITEM 4.**                CONTROLSAND PROCEDURES

(a)*   Evaluation of disclosure controls andprocedures.*   The Company carried out an evaluation, as of August 4,2007, under the supervision and with the participation of the Company’smanagement, including the Company’s Principal Executive Officer and Principal FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures pursuant to Rule 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended. Basedupon that evaluation, the Principal Executive Officer and Principal FinancialOfficer concluded that the Company’s disclosure controls and procedures areeffective in ensuring that all information required to be filed in thisQuarterly Report on Form 10-Q was (i) recorded, processed,summarized and reported within the time period specified in the Securities andExchange Commission’s rules and forms (ii) and that the disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed by the Company inthe reports that the Company files or submits under the Exchange Act isaccumulated and communicated to the Company’s management, including itsPrincipal Executive and Principal Financial Officers, as appropriate to allowtimely decisions regarding required disclosure.

(b)*   Changes in internal control overfinancial reporting.*   There has been no change in the Company’sinternal control over financial reporting identified in connection with the evaluationrequired by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 thatoccurred during the Company’s last fiscal quarter (the Company’s fourth fiscalquarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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**PART II. OTHER INFORMATION**

**ITEM 1.**                LEGAL PROCEEDINGS

There have been nomaterial changes in the Company’s legal proceedings from what was reported inits Annual Report on Form 10-K filed with the SEC on April 6,2007.

**ITEM 1A.**        RISK FACTORS

There have been nomaterial changes in the Company’s risk factors from what was reported in itsAnnual Report on Form 10-K filed with the SEC on April 6, 2007.

**ITEM 2.**                UNREGISTERED SALESOF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**ITEM 3.**                DEFAULTS UPONSENIOR SECURITIES

None.

**ITEM 4.**                SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

In accordance withthe Company’s notice and proxy statement dated May 24, 2007, the Companyheld its Annual Meeting of Stockholders on June 27, 2007. Holders of55,539,308 shares of the Company’s common stock were present in person orby proxy, representing approximately 95.7% of the Company’s58,043,382 shares outstanding on the record date. The matters set forthbelow were submitted to a vote of the Company’s stockholders:

(a)    The election of eleven directors of theCompany to hold office until the next Annual Meeting of Stockholders or untiltheir respective successors are duly elected and qualified. The followingpersons were elected as members of the Board of Directors:

| **Name of Nominee** | ** ** | ** ** | ** ** | **Votes  For** | ** ** | **Votes  Withheld** | ** ** |
|-------------------------------|------------|------------|------------|----------------|------------|---------------------|------------|
| Bodil M. Arlander             |       | 42,268,706 |       | 13,270,602     |       |
| Philip M.  Carpenter III      |       | 47,475,785 |       | 8,063,523      |       |
| Richard P.  Crystal           |       | 46,382,953 |       | 9,156,355      |       |
| David H. Edwab                |       | 54,973,437 |       | 565,871        |       |
| John D. Howard                |       | 42,138,322 |       | 13,400,986     |       |
| Louis Lipschitz               |       | 54,989,942 |       | 549,366        |       |
| Edward W.  Moneypenny         |       | 55,016,412 |       | 522,896        |       |
| Richard L. Perkal             |       | 46,018,077 |       | 9,521,231      |       |
| Arthur E. Reiner              |       | 54,887,107 |       | 652,201        |       |
| Ronald W. Ristau              |       | 45,210,543 |       | 10,328,765     |       |
| Pamela Grunder Sheiffer       |       | 55,015,432 |       | 523,876        |       |

 

(b)   The proposal to ratify the selection of Ernst &Young LLP to serve as the Company’s independent registered public accountingfirm for the fiscal year ending February 2, 2008:

| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** |
|---------------|------------|-------------------|------------|-----------------|
| 55,391,865    |       | 145,784           |       | 1,659           |

 

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**ITEM 5.**                OTHER INFORMATION

None.

**ITEM 6.**                EXHIBITS

Thefollowing exhibits are filed with this report and made a part hereof.
| 10.1 |   | Second Amended and Restated Loan and Security  Agreement by and among Lerner New York, Inc., Lernco, Inc., Jasmine  Company, Inc., Wachovia Bank, National Association, as Agent for itself  and the other Lender named therein, dated as of August 22, 2007.                                                                                                                                               |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2 |   | Second Amended and  Restated Guarantee made by New York & Company, Inc., Lerner New York  Holding, Inc., Nevada Receivable Factoring, Inc., Associated Lerner Shops of  America, Inc. and Lerner New York GC, LLC in favor of Wachovia Bank, National  Association, as Agent for itself and the other Lender named in the Second  Amended and Restated Loan and Security Agreement, dated as of August 22,  2007. |
| 10.3 |   | Second Amended and  Restated Collateral Assignment of Trademarks made among Lernco, Inc. and  Jasmine Company, Inc. in favor of Wachovia Bank, National Association, as  Agent for itself and the other Lender named in the Second Amended and  Restated Loan and Security Agreement, dated as of August 22, 2007.                                                                                                         |
| 10.4 |   | Amended and Restated  Collateral Assignment of Trademarks made among Lerner New York, Inc. in favor  of Wachovia Bank, National Association, as Agent for itself and the other  Lender named in the Second Amended and Restated Loan and Security Agreement,  dated as of August 22, 2007.                                                                                                                                 |
| 10.5 |   | Second Amended and  Restated Stock Pledge Agreement by and between Lerner New York, Inc. and  Wachovia Bank, National Association, as Agent for itself and the other Lender  named in the Second Amended and Restated Loan and Security Agreement, dated  as of August 22, 2007.                                                                                                                                           |
| 10.6 |   | Second Amended and  Restated Stock Pledge Agreement by and between Lerner New York Holding, Inc.  and Wachovia Bank, National Association, as Agent for itself and the other  Lender named in the Second Amended and Restated Loan and Security Agreement,  dated as of August 22, 2007.                                                                                                                                   |
| 10.7 |   | Second Amended and  Restated Stock Pledge Agreement by and between New York & Company,  Inc. and Wachovia Bank, National Association, as Agent for itself and the  other Lender named in the Second Amended and Restated Loan and Security  Agreement, dated as of August 22, 2007.                                                                                                                               |
| 10.8 |   | Second Amended and  Restated Intercompany Subordination Agreement made among the Obligors, as  defined in the Second Amended and Restated Loan and Security Agreement, and  Wachovia Bank, National Association, as Agent for itself and the other Lender  named in the Second Amended and Restated Loan and Security Agreement, dated  as of August 22, 2007.                                                             |
| 31.1 |   | Certification of Chief  Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) promulgated  under the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                |
| 31.2 |   | Certification of Chief  Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) promulgated  under the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                |
| 32.1 |   | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                           |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

|        | New York & Company, Inc. |
|--------|----------------------------------------|
|   | /s/ Ronald W. Ristau                   |
|   | By:                                    | Ronald W. Ristau |
|   | Its:                                   | *President and Chief Financial Officer* |
|   | * *                               | *(Principal Financial Officer)* |
|   | Dated:                                 | September 7, 2007 |

 

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