**UNITEDSTATESSECURITIES 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 July 29,  2006** |
| **OR**                                                 |
| **o**                                                  | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d)** |
| ** **                                             | **OF THE SECURITIES EXCHANGE ACT OF 1934**                  |

 

**forthe transition periodfrom                to                .**

**COMMISSION FILENUMBER:  1-32315**

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

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

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities 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 past 90 days.Yes x  No o

Indicate by check mark ifthe registrant is a large accelerated filer, an accelerated filer, or anon-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 markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o   No x

As of August 25,2006, the registrant had 56,310,934 shares of common stock 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       |   | 10     |   |
| Item 3.                             | Quantitative and Qualitative Disclosures About Market  Risk                                                                     |   | 19     |   |
| Item 4.                             | Controls and Procedures                                                                                                         |   | 20     |   |
| PART II.  OTHER INFORMATION    |                                                                                                                            |   |   |
| Item  1.                            | Legal  Proceedings                                                                                                              |   | 21     |   |
| Item 1A.                            | Risk  Factors                                                                                                                   |   | 21     |   |
| Item 2.                             | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                    |   | 21     |   |
| Item 3.                             | Defaults Upon Senior Securities                                                                                                 |   | 21     |   |
| Item 4.                             | Submission of Matters to a Vote of Security Holders                                                                             |   | 21     |   |
| Item  5.                            | Other  Information                                                                                                              |   | 22     |   |
| Item 6.                             | Exhibits                                                                                                                        |   | 22     |   |

 

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**PART I.**

**FINANCIALINFORMATION**

**ITEM 1.**   FINANCIALSTATEMENTS

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

| ** **                                                                            | ** ** | **Three months  ended  July 29,  2006**                                  | ** ** | **Three months  ended  July 30,  2005** | ** ** | **Six months  ended  July 29,  2006** | ** ** | **Six months  ended  July 30,  2005** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                            | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net sales                                                                             |       |                                                                               | $          | 264,858                                           |       |                                            |       | $                                               | 254,581    |   |   |   | $ | 531,995 |   |   |   | $ | 524,556 |   |   |
| Cost of goods  sold, buying and occupancy costs                                       |       |                                                                               | 189,277    |                                              |       |                                            | 172,563    |                                            |       |   | 377,311 |   |   |   | 344,228 |   |   |
| Gross profit                                                                          |       |                                                                               | 75,581     |                                              |       |                                            | 82,018     |                                            |       |   | 154,684 |   |   |   | 180,328 |   |   |
| Selling, general  and administrative expenses                                         |       |                                                                               | 64,200     |                                              |       |                                            | 60,278     |                                            |       |   | 132,684 |   |   |   | 121,204 |   |   |
| Operating income                                                                      |       |                                                                               | 11,381     |                                              |       |                                            | 21,740     |                                            |       |   | 22,000 |   |   |   | 59,124 |   |   |
| Interest expense,  net of interest income of $335, $611, $549, and $976, respectively |       |                                                                               | 477        |                                              |       |                                            | 1,301      |                                            |       |   | 967 |   |   |   | 2,710 |   |   |
| Income before income taxes                                                            |       |                                                                               | 10,904     |                                              |       |                                            | 20,439     |                                            |       |   | 21,033 |   |   |   | 56,414 |   |   |
| Provision for  income taxes                                                           |       |                                                                               | 4,405      |                                              |       |                                            | 8,189      |                                            |       |   | 8,477 |   |   |   | 22,684 |   |   |
| Net income                                                                            |       |                                                                               | $          | 6,499                                             |       |                                            |       | $                                               | 12,250     |   |   |   | $ | 12,556 |   |   |   | $ | 33,730 |   |   |
| Basic earnings per share                                                              |       |                                                                               | $          | 0.12                                              |       |                                            |       | $                                               | 0.23       |   |   |   | $ | 0.23 |   |   |   | $ | 0.63 |   |   |
| Diluted earnings per share                                                            |       |                                                                               | $          | 0.11                                              |       |                                            |       | $                                               | 0.21       |   |   |   | $ | 0.21 |   |   |   | $ | 0.59 |   |   |
| Weighted average shares  outstanding:                                                 |       |                                                                               |       |                                              |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock                                                          |       |                                                                               | 55,656     |                                              |       |                                            | 53,654     |                                            |       |   | 55,441 |   |   |   | 53,497 |   |   |
| Diluted shares of  common stock                                                       |       |                                                                               | 59,852     |                                              |       |                                            | 57,197     |                                            |       |   | 59,798 |   |   |   | 56,935 |   |   |

 

 

 

 

 

See accompanying notes.

1

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**New York &Company, Inc. and Subsidiaries**

**CondensedConsolidated Balance Sheets**

| ** **                                                                                                                                                                                                            | ** ** | **July 29,  2006**                                                        | ** ** | **January 28,  2006** | ** ** | **July 30,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                            | ** ** | **(Unaudited)**                                                                | ** ** | **(Audited)**              | ** ** | **(Unaudited)**         | ** ** |
| ** **                                                                                                                                                                                                            | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| **Assets**                                                                                                                                                                                                            | ** ** |                                                                           | ** ** | ** **                 |       |                    | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                       |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                             |       |                                                                           | $          | 36,888                     |       |                    |       | $ | 57,436 |   |   |   | $ | 57,239 |   |   |
| Accounts receivable                                                                                                                                                                                                   |       |                                                                           | 21,687     |                       |       |                    | 15,581     |   |   |   | 19,566 |   |   |
| Inventories, net                                                                                                                                                                                                      |       |                                                                           | 102,526    |                       |       |                    | 109,656    |   |   |   | 100,977 |   |   |
| Prepaid expenses                                                                                                                                                                                                      |       |                                                                           | 18,584     |                       |       |                    | 18,770     |   |   |   | 18,498 |   |   |
| Other current assets                                                                                                                                                                                                  |       |                                                                           | 1,934      |                       |       |                    | 1,515      |   |   |   | 2,437 |   |   |
| Total current  assets                                                                                                                                                                                                 |       |                                                                           | 181,619    |                       |       |                    | 202,958    |   |   |   | 198,717 |   |   |
| Property and  equipment, net                                                                                                                                                                                          |       |                                                                           | 181,949    |                       |       |                    | 159,388    |   |   |   | 135,351 |   |   |
| Goodwill and  intangible assets                                                                                                                                                                                       |       |                                                                           | 43,141     |                       |       |                    | 41,702     |   |   |   | 40,857 |   |   |
| Other assets                                                                                                                                                                                                          |       |                                                                           | 1,949      |                       |       |                    | 2,227      |   |   |   | 3,282 |   |   |
| Total assets                                                                                                                                                                                                          |       |                                                                           | $          | 408,658                    |       |                    |       | $ | 406,275 |   |   |   | $ | 378,207 |   |   |
| **Liabilities  and stockholders’ equity**                                                                                                                                                                        | ** ** |                                                                           | ** ** | ** **                 |       |                    | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                                                  |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Current portion, long-term debt                                                                                                                                                                                       |       |                                                                           | $          | 6,000                      |       |                    |       | $ | 6,000 |   |   |   | $ | — |   |   |
| Accounts payable                                                                                                                                                                                                      |       |                                                                           | 68,944     |                       |       |                    | 90,980     |   |   |   | 66,572 |   |   |
| Accrued expenses                                                                                                                                                                                                      |       |                                                                           | 49,770     |                       |       |                    | 55,261     |   |   |   | 52,285 |   |   |
| Income taxes payable                                                                                                                                                                                                  |       |                                                                           | 587        |                       |       |                    | —     |   |   |   | — |   |   |
| Deferred income taxes                                                                                                                                                                                                 |       |                                                                           | 3,006      |                       |       |                    | 3,016      |   |   |   | 1,636 |   |   |
| Total current  liabilities                                                                                                                                                                                            |       |                                                                           | 128,307    |                       |       |                    | 155,257    |   |   |   | 120,493 |   |   |
| Long-term  debt, net of current portion                                                                                                                                                                               |       |                                                                           | 28,500     |                       |       |                    | 31,500     |   |   |   | 75,000 |   |   |
| Deferred income  taxes                                                                                                                                                                                                |       |                                                                           | 3,403      |                       |       |                    | 4,723      |   |   |   | 3,017 |   |   |
| Deferred rent and  other liabilities                                                                                                                                                                                  |       |                                                                           | 49,407     |                       |       |                    | 35,745     |   |   |   | 30,370 |   |   |
| Total liabilities                                                                                                                                                                                                     |       |                                                                           | 209,617    |                       |       |                    | 227,225    |   |   |   | 228,880 |   |   |
| Commitments and  contingencies                                                                                                                                                                                        |       |                                                                           | —     |                       |       |                    | —     |   |   |   | — |   |   |
| Stockholders’  equity:                                                                                                                                                                                           |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Common stock, voting, par value $0.001; 300,000  shares authorized; 55,938, 54,629 and 54,179 shares issued and outstanding at  July 29, 2006, January 28, 2006, and July 30, 2005,  respectively |       |                                                                           | 56         |                       |       |                    | 55         |   |   |   | 54 |   |   |
| Additional paid-in capital                                                                                                                                                                                            |       |                                                                           | 133,924    |                       |       |                    | 126,490    |   |   |   | 121,763 |   |   |
| Retained earnings                                                                                                                                                                                                     |       |                                                                           | 65,530     |                       |       |                    | 52,974     |   |   |   | 28,214 |   |   |
| Accumulated other comprehensive loss                                                                                                                                                                                  |       |                                                                           | (469       | )                          |       |                    | (469       | ) |   |   | (704 | ) |   |
| Total  stockholders’ equity                                                                                                                                                                                      |       |                                                                           | 199,041    |                       |       |                    | 179,050    |   |   |   | 149,327 |   |   |
| Total liabilities and  stockholders’ equity                                                                                                                                                                      |       |                                                                           | $          | 408,658                    |       |                    |       | $ | 406,275 |   |   |   | $ | 378,207 |   |   |

 

S

See accompanying notes.

2

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

| ** **                                                                         | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **(Amounts in thousands)**                | ** ** |
| **Operating activities**                                                           | ** ** |                                                | ** ** | ** **                                          |       |   | ** ** | ** ** |   |
| Net income                                                                         |       |                                                | $          | 12,556                                              |       |   |   | $ | 33,730 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                                |       |                                                |       |   |   |   |   |
| Depreciation and amortization                                                      |       |                                                | 15,651     |                                                |       |   | 11,041 |   |   |
| Amortization of deferred financing costs                                           |       |                                                | 138        |                                                |       |   | 578 |   |   |
| Share-based compensation                                                           |       |                                                | 790        |                                                |       |   | 486 |   |   |
| Deferred income taxes                                                              |       |                                                | (1,330     | )                                                   |       |   | (3,833 | ) |   |
| Changes in  operating assets and liabilities:                                      |       |                                                |       |                                                |       |   |   |   |   |
| Accounts receivable                                                                |       |                                                | (8,400     | )                                                   |       |   | (6,497 | ) |   |
| Inventories, net                                                                   |       |                                                | 7,130      |                                                |       |   | (3,811 | ) |   |
| Prepaid expenses                                                                   |       |                                                | 186        |                                                |       |   | (602 | ) |   |
| Accounts payable                                                                   |       |                                                | (22,036    | )                                                   |       |   | (9,487 | ) |   |
| Accrued expenses                                                                   |       |                                                | (5,140     | )                                                   |       |   | 423 |   |   |
| Income taxes payable                                                               |       |                                                | 587        |                                                |       |   | — |   |   |
| Other assets and liabilities                                                       |       |                                                | 11,789     |                                                |       |   | 11,616 |   |   |
| Net cash provided  by operating activities                                         |       |                                                | 11,921     |                                                |       |   | 33,644 |   |   |
| **Investing  activities**                                                          | ** ** |                                                | ** ** | ** **                                          |       |   | ** ** | ** ** |   |
| Acquisition of  Jasmine Company, Inc., net of cash acquired                   |       |                                                | —     |                                                |       |   | (21,246 | ) |   |
| Capital  expenditures                                                              |       |                                                | (38,057    | )                                                   |       |   | (42,772 | ) |   |
| Net cash used in  investing activities                                             |       |                                                | (38,057    | )                                                   |       |   | (64,018 | ) |   |
| **Financing  activities**                                                          | ** ** |                                                | ** ** | ** **                                          |       |   | ** ** | ** ** |   |
| Proceeds from  public offering                                                     |       |                                                | 2,294      |                                                |       |   | — |   |   |
| Payment of public  offering costs                                                  |       |                                                | (439       | )                                                   |       |   | — |   |   |
| Repayment of debt                                                                  |       |                                                | (3,000     | )                                                   |       |   | (1,327 | ) |   |
| Tax benefit from  exercise of stock options                                        |       |                                                | 5,893      |                                                |       |   | 3,558 |   |   |
| Proceeds from  exercise of stock options                                           |       |                                                | 840        |                                                |       |   | 221 |   |   |
| Net cash provided  by financing activities                                         |       |                                                | 5,588      |                                                |       |   | 2,452 |   |   |
| Net decrease in  cash and cash equivalents                                         |       |                                                | (20,548    | )                                                   |       |   | (27,922 | ) |   |
| Cash and cash  equivalents at beginning of period                                  |       |                                                | 57,436     |                                                |       |   | 85,161 |   |   |
| Cash and cash  equivalents at end of period                                        |       |                                                | $          | 36,888                                              |       |   |   | $ | 57,239 |   |   |
| **Supplemental  disclosure of non-cash financing activities**                      |       |                                                |       |                                                |       |   |   |   |   |
| Issuance of common stock  for the acquisition of Jasmine Company, Inc.        |       |                                                | $          | —                                              |       |   |   | $ | 8,050 |   |   |

 

See accompanying notes.

3

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements July 29, 2006 (Unaudited)**

**1.**   Organizationand Basis of Presentation

New York & Company, Inc. (together withits subsidiaries, collectively the “Company”) is a leading specialty retailerof fashion-oriented, moderately-priced women’s apparel. The Company designs andsources its proprietary branded *New York &CompanyTM* merchandise sold exclusively through its national networkof New York & Company retail stores. The target customers for theCompany’s *New York & CompanyTM*merchandise are fashion-conscious, value-sensitive women between the ages of25 and 45. On July 19, 2005, the Company acquired Jasmine Company, Inc.(“JasmineSola”), a Boston-based, privately held women’s retailer of upscale andcontemporary apparel, footwear and accessories sold through its chain of *JasmineSolaTM*branded retail stores. As of July 29, 2006, the Companyoperated 537 retail stores in 45 states, including 17JasmineSola stores. Trademarks referenced in this Quarterly Report on Form 10-Qappear in italic type and are the property of the Company.

The accompanying condensed consolidated financialstatements include the accounts for New York & Company, Inc. andall of its subsidiaries, including Lerner New York Holding, Inc. (“LernerHolding”); Lerner New York, Inc.; Lernco, Inc.; Nevada ReceivableFactoring, Inc. and JasmineSola. On a stand alone basis, without theconsolidation of its subsidiaries, New York & Company, Inc. hasno significant independent assets or operations. All significant intercompanybalances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements as of July 29,2006 and July 30, 2005 and for the thirteen weeks (“three months”)and twenty-six weeks (“six months”) ended July 29, 2006 and July 30,2005 are unaudited and are presented pursuant to the rules and regulationsof the United States Securities and Exchange Commission (“SEC”). Accordingly,these unaudited condensed consolidated financial statements should be read inconjunction with the audited consolidated financial statements and notes theretofor the fiscal year ended January 28, 2006 (“fiscal year 2005”), whichwere filed with the Company’s Annual Report on Form 10-K with theSEC on April 7, 2006. The fiscal year ending February 3, 2007 isreferred to herein as “fiscal year 2006.” In the opinion of management, theaccompanying condensed consolidated financial statements reflect alladjustments, which are of a normal recurring nature, necessary to presentfairly the financial condition, results of operations and cash flows for theinterim periods.

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 apublic offering of 8,050,000 shares of common stock, including the underwriters’over-allotment option, of which 130,000 shares were offered by the Company and7,920,000 shares were offered by certain selling stockholders at a price to thepublic of $18.50 per share. Upon consummation of the public offering on January 31,2006, net proceeds of $2.3 million and $139.8 million weredistributed to the Company and selling stockholders, respectively.

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

4

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) July 29, 2006 (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 based upon the closing stock price of New York &Company, Inc. on July 19, 2005. In addition, the Company will issueup to 200,000 shares of its common stock as additional consideration for theacquisition of JasmineSola contingent upon the achievement of certain growthtargets over the three full fiscal years following the acquisition. Thesecontingent shares, if issued, will be recorded as an adjustment to the purchaseprice and goodwill.

The Company is currently engaged in an arbitrationproceeding relating to the Stock Purchase Agreement, which could result in a futureadjustment to the purchase price and a corresponding adjustment to goodwill.

The acquisition wasaccounted for under the purchase method of accounting with a full basisadjustment. The purchase price allocation resulted in goodwill of$11.1 million and indefinite lived intangible assets related to trademarksof $17.2 million.

**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. A reconciliation between basic and diluted earnings per shareis as follows:

| ** **                            | ** ** | **Three months  ended  July 29, 2006**                              | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                            | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net income                            |       |                                                                               | $          | 6,499                                                 |       |                                                |       | $                                                   | 12,250     |   |   |   | $ | 12,556 |   |   |   | $ | 33,730 |   |   |
| *Basic  EPS*                          | * *   |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Weighted-average  shares outstanding: |       |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock          |       |                                                                               | 55,656     |                                                  |       |                                                | 53,654     |                                                |       |   | 55,441 |   |   |   | 53,497 |   |   |
| Basic EPS                             |       |                                                                               | $          | 0.12                                                  |       |                                                |       | $                                                   | 0.23       |   |   |   | $ | 0.23 |   |   |   | $ | 0.63 |   |   |
| *Diluted EPS*                         | * *   |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Weighted-average  shares outstanding: |       |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic shares of common stock          |       |                                                                               | 55,656     |                                                  |       |                                                | 53,654     |                                                |       |   | 55,441 |   |   |   | 53,497 |   |   |
| Plus impact of stock options          |       |                                                                               | 4,196      |                                                  |       |                                                | 3,543      |                                                |       |   | 4,357 |   |   |   | 3,438 |   |   |
| Diluted shares of common stock        |       |                                                                               | 59,852     |                                                  |       |                                                | 57,197     |                                                |       |   | 59,798 |   |   |   | 56,935 |   |   |
| Diluted EPS                           |       |                                                                               | $          | 0.11                                                  |       |                                                |       | $                                                   | 0.21       |   |   |   | $ | 0.21 |   |   |   | $ | 0.59 |   |   |

 

The calculation of diluted earnings per share for thethree and six months ended July 29, 2006  excludes options topurchase 886,836 and 855,336 shares, respectively, due to their antidilutive effect.

5

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) July 29, 2006 (Unaudited)**

**5.**   Share-BasedCompensation

In December 2004, the Financial AccountingStandards Board (“FASB”) published SFAS No. 123 (Revised 2004), “Share-BasedPayment” (“SFAS 123-R”). SFAS 123-R retains certainrequirements of the original SFAS No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”) and requires all forms of share-basedpayment to employees, including employee stock options, to be treated ascompensation and recognized in the consolidated statement of income. TheCompany adopted SFAS 123-R in December 2004, utilizing the modifiedprospective method. Prior to the Company’s adoption of SFAS 123-R,the Company followed SFAS 123 and treated all forms of share-basedpayments as compensation recognized in the consolidated statement of income.Therefore, the adoption of SFAS 123-R did not have a material impacton the Company’s consolidated financial statements.

In connection with the consummation of the publicoffering on January 31, 2006, BSMB/NYCG, LLC, an affiliate of Bear StearnsMerchant Banking and the controlling stockholder of the Company, realized acash return in excess of 3.0 times its investment in the Company; as such,2,777,311 options to purchase common stock issued pursuant to grants underthe Company’s stock option plan vested and became immediately exercisable.

The Company recorded share-based compensation expensein the amount of $0.2 million and $0.3 million for the three monthsended July 29, 2006 and July 30, 2005, respectively, and $0.8million and $0.5 million for the six months ended July 29, 2006 and July 30,2005, 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 issued1,308,084 shares of common stock upon exercise of stock options during the sixmonths ended July 29, 2006.

**6.**   PensionPlan

The Company sponsors a single-employer definedbenefit pension 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 that was set toexpire in August 2005 is under renegotiation.****Asigned extension agreement is in effect until November 30, 2006.

6

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) July 29, 2006 (Unaudited)**

**6.**   Pension Plan (Continued)

The plan providesretirement benefits for union employees who have attained the age of18 and completed 425 hours of service in the twelve-monthperiod following the date of employment. The plan provides benefits based onlength of service. The Company’s funding policy for the plan is to contributeannually the amount necessary to provide for benefits based on accrued service.The Company does not anticipate the need for a material contribution to theplan for the remainder of the current fiscal year. Net periodic benefit costincludes the following components:

| ** **                      | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|---------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | **(Amounts in thousands)**                  | ** ** |
| Service cost                    |       |                                                  | $          | 99                                                    |       |                                                |       | $                                                   | 73         |   |   |   | $ | 166 |   |   |   | $ | 146 |   |   |
| Interest cost                   |       |                                                  | 135        |                                                  |       |                                                | 130        |                                                |       |   | 270 |   |   |   | 273 |   |   |
| Expected return  on plan assets |       |                                                  | (179       | )                                                     |       |                                                | (187       | )                                                   |       |   | (359 | ) |   |   | (375 | ) |   |
| Net periodic benefit  cost      |       |                                                  | $          | 55                                                    |       |                                                |       | $                                                   | 16         |   |   |   | $ | 77 |   |   |   | $ | 44 |   |   |

 

**7.**   IncomeTax Provision

The income tax provisionsfor interim periods are based upon management’s estimate of the Company’sannualized effective tax rate. Effective tax rates differ from statutoryfederal income tax rates primarily due to provisions for state and local taxes.

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

On January 4, 2006, the Company’s creditfacilities were amended to include: (i) an additional $37.5 millionterm loan facility maturing on March 17, 2009 bearing interest at theEurodollar rate plus 2.50% (“January 4, 2006 term loan”), (ii) anextension of the term of the Company’s existing $90.0 million revolvingcredit facility to March 17, 2009 (contains a sub-facility available forissuance of letters of credit of up to $75.0 million), and (iii) areduction of certain interest rates under the revolver by as much as50 basis points, depending upon the Company’s financial performance. Usingthe $37.5 million of proceeds from the January 4, 2006 term loanplus $38.0 million of cash on-hand, the Company prepaid in full the$75.0 million term loan entered into on March 16, 2004 (“March 16,2004 term loan”), which was bearing interest at the Eurodollar rateplus 5.00%, and $0.5 million in fees related to the refinancing. Inconnection with the prepayment of the March 16, 2004 term loan, $0.9million of unamortized deferred financing costs were written-off in thefourth quarter of fiscal year 2005.

As of July 29, 2006, the Company had availabilityunder its revolving credit facility of $44.7 million, net of letters ofcredit outstanding of $9.7 million, as compared to availability of$40.5 million, net of letters of credit outstanding of $14.5 million,as of July 30, 2005.

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 2.00% per year, dependingupon the Company’s financial performance, or the Prime rate. The Company paysthe lenders under the 

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) July 29, 2006 (Unaudited)**

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

revolving credit facilitya monthly fee on outstanding letters of credit at a rate of between 1.00% and1.50% per year, depending upon the Company’s financial performance. The Companypays the lenders under the revolving credit facility a monthly fee on aproportion of the unused commitments under that facility at a rate of between0.25% and 0.50% per year, depending upon the Company’s financial performance.The term loan bears interest at a floating rate equal to the Eurodollar rateplus 2.50% per year. For so long as any default under the revolving creditfacility continues, at the option of the agent or lenders, interest on therevolving loans may increase to 4.00% per year above the Eurodollar rate forall Eurodollar rate loans and 2.00% per year above the Prime rate for all Primerate loans, and interest on the term loan may increase to the Eurodollar rateplus 4.50% per year.

The Company’s credit facilities contain certaincovenants, including restrictions on its ability to pay dividends on its commonstock, incur additional indebtedness and to prepay, redeem or repurchase otherdebt. Subject to such restrictions, the Company may incur more debt for workingcapital, capital expenditures, acquisitions and for other purposes. The termsof the Company’s credit facilities also subject it to certain maintenancecovenants in the event its borrowing availability under its revolving creditfacility, plus cash on-hand, falls below $40.0 million. These covenantsinclude maintaining a minimum trailing twelve-month EBITDA (as defined in theCompany’s amended and restated credit agreement) and a maximum leverage ratio.This ratio and the calculation of EBITDA under the amended and restated creditagreement are not necessarily comparable to other similarly titled ratios andmeasurements of other companies due to inconsistencies in the method ofcalculation. In addition, in the event that the Company’s borrowingavailability under its revolving credit facility, plus cash on-hand, fallsbelow $50.0 million and it fails to maintain a minimum trailingtwelve-month EBITDA, then the outstanding principal amount of the $37.5 millionterm loan must be prepaid down to $25.0 million, subject to certainrestrictions. The Company is currently in compliance with the financialcovenants 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. andcertain of its subsidiaries, as collateral for the Company’s obligations underthe credit facilities. In addition, New York & Company, Inc. andcertain of its subsidiaries have fully and unconditionally guaranteed thecredit facilities, and such guarantees are joint and several.

**9.**   NewAccounting Pronouncements

In October 2005, the FASB issued FSP No. FAS13-1, ‘‘Accounting for Rental Costs Incurred during a ConstructionPeriod.’’ The FSP concluded that rental costs associated with ground orbuilding operating leases that are incurred during a construction period shouldbe recognized as rental expense. The rental costs should be included in incomefrom continuing operations. The guidance does not change application of themaximum guarantee test in EITF Issue No. 97-10, ‘‘The Effect ofLessee Involvement in Asset Construction.’’ The guidance in this FSP shall beapplied in the first reporting period beginning after December 15, 2005.Retrospective application in accordance with FASB Statement No. 154, ‘‘AccountingChanges and Error Corrections,’’ is permitted but not required; as such, theCompany adopted the provisions of the FSP beginning in February 2006 andis applying them prospectively. The Company 

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**New York & Company, Inc. Notes to Condensed Consolidated Financial Statements (Continued) July 29, 2006 (Unaudited)**

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

currently anticipates thatthe adoption of this pronouncement will result in approximately$3.0 million of additional rent expense in the current fiscal year, whichprior to the adoption of this pronouncement would have been capitalized andamortized into depreciation expense on a straight-line basis over the leaseterm, commencing on a store’s opening date. For the three months ended July 29,2006, $1.1 million of rent expense was recognized during the constructionperiods for stores, resulting in an after-tax charge to earnings of $0.7million, or $0.01 per diluted share. For the six months ended July 29,2006, $2.0 million of rent expense was recognized during the constructionperiods for stores, resulting in an after-tax charge to earnings of $1.2million, or $0.02 per diluted share.

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. The Interpretation is effective for fiscalyears beginning after December 15, 2006. The Company is currentlyevaluating the impact that the adoption of this Interpretation will have on itsfinancial position and results of operations.

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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;

·                    seasonalfluctuations in the Company’s business;

·                    theCompany’s ability to anticipate and respond to fashion trends and launch newproduct lines successfully;

·                    generaleconomic conditions, consumer confidence and spending patterns;

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

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

·                    theCompany’s ability to retain and recruit 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;

·                    theCompany’s reliance on foreign sources of production;

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

·                    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;

·                    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;

·                    theeffects of government regulation;

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·                    the control ofthe 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 7,2006.

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. The target customers for the Company’s*New York & Company* merchandise are fashion-conscious,value-sensitive women between the ages of 25 and 45. On July 19,2005, the Company acquired JasmineSola, a Boston-based, privately held women’sretailer of upscale and contemporary apparel, footwear and accessories soldthrough its chain of *JasmineSola*branded retail stores. As of July 29, 2006, the Company operated 537retail stores in 45 states, including 17 JasmineSola stores.

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 its first and fourth quarters.Seasonal fluctuations also affect inventory levels. The Company must carry asignificant amount of inventory, especially before the holiday season sellingperiod.

Net sales for the three months ended July 29,2006 increased 4.0% to $264.9 million, as compared to$254.6 million for the three months ended July 30, 2005. Net salesfor the six months ended July 29, 2006 increased 1.4% to $532.0 million,as compared to $524.6 million for the same period last year. Comparable storesales decreased 4.0% for the three months ended July 29, 2006, as comparedto a comparable store sales increase of 0.4% for the three months ended July 30,2005. Comparable store sales decreased 6.7% for the six months ended July 29,2006, as compared to a comparable store sales increase of 2.3% for the sameperiod last year. Net income for the three months ended July 29,2006 decreased to $6.5 million, or $0.11 per diluted share, ascompared to $12.3 million, or $0.21 per diluted share, for the threemonths ended July 30, 2005. Net income for the six months ended July 29,2006 decreased to $12.6 million, or $0.21 per diluted share, ascompared to $33.7 million, or $0.59 per diluted share, for the sixmonths ended July 30, 2005. For a discussion of the more significantfactors impacting these results, see “Results of Operations” below.

During the six months ended July 29, 2006, theCompany opened 24 new stores, including two JasmineSola stores,closed six stores and completed 19 remodels, ending the periodoperating 537 stores in 45 states, as compared to 506 stores as of July 30,2005. Total selling square footage as of July 29, 2006 was3.280 million, as compared to 3.237 million as of July 30, 2005.Capital spending for the six months ended July 29, 2006 was$38.1 million, as compared to $42.8 million for the six months ended July 30,2005. The $38.1 million of capital spending represents $35.0 millionrelated to the construction of new stores and the remodeling of existing storesand $3.1 million related to non-store capital projects, which principallyrepresent information technology enhancements.

The Company’s balance sheet at July 29,2006 included $36.9 million in cash and $53.3 million of workingcapital, as compared to $57.2 million in cash and $78.2 million ofworking capital at July 30, 2005. The decrease in working capital comparedto last year was primarily the result of the Company using $38.0 millionof cash on-hand plus $37.5 million of proceeds from the January 4, 2006term loan to prepay 

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in full a $75.0 millionterm loan plus $0.5 million of fees incurred in connection with the refinancing.At July 29, 2006, the Company’s inventory was $102.5 million, ascompared to $101.0 million of inventory at July 30, 2005.

The Company recentlysigned a three year agreement with Accretive Commerce for integrated e-commerceoperations. Under the agreement, Accretive Commerce will provide an end to endsuite of direct commerce services, including integration of a new e-commerceplatform (in alliance with Art Technology Group, Inc.), order management,order fulfillment, customer care, and channel management services. The Companyintends to begin selling merchandise through its e-commerce internet site laterthis year.

***General***

*NetSales.**  *Net sales consist of sales from comparableand non-comparable stores. A store is included in the comparable store salescalculation after it has completed 13 full fiscal months of operation from thestore’s original opening date or once it has been reopened after remodeling.Non-comparable store sales include stores which have not completed 13 fullfiscal months of operations, sales from closed stores, and sales from storesclosed or in temporary locations during periods of remodeling. Net sales arerecorded when the customer takes possession of the merchandise and thepurchases are paid for, primarily with either cash or credit card. A reserve isprovided for projected merchandise 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 thoseamounts 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 are 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 corporateexpenses, 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 July 29, 2006 and July 30, 2005:

| ** **                                      | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net sales                                       |       |                                                  | 100.0      | %                                                     |       |                                                | 100.0      | %                                                   |       |   | 100.0 | % |   |   | 100.0 | % |   |
| Cost of goods  sold, buying and occupancy costs |       |                                                  | 71.5       | %                                                     |       |                                                | 67.8       | %                                                   |       |   | 70.9 | % |   |   | 65.6 | % |   |
| Gross profit                                    |       |                                                  | 28.5       | %                                                     |       |                                                | 32.2       | %                                                   |       |   | 29.1 | % |   |   | 34.4 | % |   |
| Selling, general  and administrative expenses   |       |                                                  | 24.2       | %                                                     |       |                                                | 23.7       | %                                                   |       |   | 25.0 | % |   |   | 23.1 | % |   |
| Operating income                                |       |                                                  | 4.3        | %                                                     |       |                                                | 8.5        | %                                                   |       |   | 4.1 | % |   |   | 11.3 | % |   |
| Interest expense,  net                          |       |                                                  | 0.2        | %                                                     |       |                                                | 0.5        | %                                                   |       |   | 0.2 | % |   |   | 0.5 | % |   |
| Income before income taxes                      |       |                                                  | 4.1        | %                                                     |       |                                                | 8.0        | %                                                   |       |   | 3.9 | % |   |   | 10.8 | % |   |
| Provision for  income taxes                     |       |                                                  | 1.6        | %                                                     |       |                                                | 3.2        | %                                                   |       |   | 1.5 | % |   |   | 4.4 | % |   |
| Net income                                      |       |                                                  | 2.5        | %                                                     |       |                                                | 4.8        | %                                                   |       |   | 2.4 | % |   |   | 6.4 | % |   |

 

| ** **                                    | ** ** | **Three months  ended  July 29, 2006**                             | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **(Dollars in thousands, except square foot data)** | ** ** |
| **Selected operating data:**                  |       |                                                                              |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Total net sales  growth                       |       |                                                                              | 4.0        | %                                                     |       |                                                | 4.9        | %                                                   |       |   | 1.4 | % |   |   | 6.0 | % |   |
| Comparable store  sales increase / (decrease) |       |                                                                              | (4.0       | )%                                                    |       |                                                | 0.4        | %                                                   |       |   | (6.7 | )% |   |   | 2.3 | % |   |
| Net sales per  average selling square foot(1) |       |                                                                              | $          | 81                                                    |       |                                                |       | $                                                   | 79         |   |   |   | $ | 163 |   |   |   | $ | 163 |   |   |
| Net sales per  average store(2)               |       |                                                                              | $          | 496                                                   |       |                                                |       | $                                                   | 515        |   |   |   | $ | 1,008 |   |   |   | $ | 1,068 |   |   |
| Average selling square  footage per store(3)  |       |                                                                              | 6,108      |                                                  |       |                                                | 6,398      |                                                |       |   | 6,108 |   |   |   | 6,398 |   |   |

 

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(1)        Net sales per average selling square foot is defined as net salesdivided by the average of beginning and end of period selling square feet.

(2)        Net sales per average store is defined as net sales divided by theaverage of beginning and end of period number of stores.

(3)        Average selling square footage per store isdefined as end of period selling square feet divided by end of period number ofstores.

| ** **                                            | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                            | ** ** | **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                     |       |                                                  | 530        |                                                  |       | 3,282,333                                           |       |                                                | 482        |   |   | 3,196,211 |   |   | 519 |   |   | 3,254,465 |   |   | 476 |   |   | 3,189,770 |   |
| New stores                                            |       |                                                  | 10         |                                                  |       | 43,317                                              |       |                                                | 13         |   |   | 59,508 |   |   | 24 |   |   | 107,629 |   |   | 21 |   |   | 92,416 |   |
| Acquired stores                                       |       |                                                  | —     |                                                  |       | —                                              |       |                                                | 14         |   |   | 38,760 |   |   | — |   |   | — |   |   | 14 |   |   | 38,760 |   |
| Closed stores                                         |       |                                                  | (3         | )                                                     |       | (17,409                                             | )          |                                                | (3         | ) |   | (16,404 | ) |   | (6 | ) |   | (35,556 | ) |   | (5 | ) |   | (27,048 | ) |
| Net impact of remodeled stores on selling square feet |       |                                                  | —     |                                                  |       | (28,166                                             | )          |                                                | —     |   |   | (40,604 | ) |   | — |   |   | (46,463 | ) |   | — |   |   | (56,427 | ) |
| Stores open, end of  period                           |       |                                                  | 537        |                                                  |       | 3,280,075                                           |       |                                                | 506        |   |   | 3,237,471 |   |   | 537 |   |   | 3,280,075 |   |   | 506 |   |   | 3,237,471 |   |

 

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***Three Months Ended July 29, 2006 Compared toThree Months Ended July 30, 2005***

*NetSales.**  *Net sales for the three months ended July 29,2006 increased 4.0% to $264.9 million, as compared to$254.6 million for the three months ended July 30, 2005. The increaseis attributable to a $19.9 million, or 161.5%, increase in non-comparablestore sales, primarily driven by new stores and acquired JasmineSola stores.The increase in non-comparable store sales was offset by a $9.6 million,or 4.0%, decrease in comparable store sales. In the comparable store base,average dollar sales per transaction were flat and the number of transactionsper average store decreased 4.0%, as compared to the same period last year.

*GrossProfit.**  *Gross profit decreased $6.4 millionto $75.6 million, or 28.5% of net sales, for the three months ended July 29,2006, as compared to $82.0 million, or 32.2% of net sales, for thethree months ended July 30, 2005. The decrease in gross profit isprimarily attributable to the decrease in comparable store sales and anincrease in merchandise markdowns for the three months ended July 29,2006, as compared to the same period last year. In addition, buying andoccupancy costs increased as a percentage of net sales primarily due toincreases in real estate costs related to the impact of new stores opened sinceJuly 30, 2005 combined with the impact of lower comparable store sales.Also contributing to the increase in buying and occupancy costs is therecognition of rental expense during the construction period for new storesbeginning in February 2006, with the adoption of FSP No. FAS 13-1,“Accounting for Rental Costs Incurred during a Construction Period.”

*Selling,General and Administrative Expenses.**  *Selling,general and administrative expenses increased $3.9 million to$64.2 million, or 24.2% of net sales, for the three months ended July 29,2006, as compared to $60.3 million, or 23.7% of net sales, for thethree months ended July 30, 2005. As a percentage of net sales, selling,general and administrative expenses increased for the three months ended July 29,2006, as compared to the three months ended July 30, 2005, due in largepart to the decrease in comparable store sales. The increase in selling,general and administrative expenses for the three months ended July 29,2006 is primarily due to higher store selling expenses as a result of newstores opened since July 30, 2005.

*OperatingIncome.*   The decrease in gross profit and higherselling, general and administrative expenses, as explained above, resulted in a$10.3 million decrease in operating income to $11.4 million, or 4.3%of net sales, for the three months ended July 29, 2006, as compared to$21.7 million, or 8.5% of net sales, for the three months ended July 30,2005.

*InterestExpense, Net.*   Net interest expense decreased$0.8 million to $0.5 million, or 0.2% of net sales, for the threemonths ended July 29, 2006, as compared to $1.3 million, or 0.5%of net sales, for the three months ended July 30, 2005. The decrease innet interest expense is due to a reduction in borrowings and interest ratesobtained through the Company’s prepayment of a $75.0 million term loan on January 4,2006 using proceeds from a new $37.5 million term loan facility plus cashon-hand.

*Provisionfor Income Taxes.*   The effective tax rate for thethree months ended July 29, 2006 was 40.4%, as compared to 40.1% forthe three months ended July 30, 2005.

*NetIncome.*   For the reasons discussed above, netincome decreased $5.8 million to $6.5 million, or 2.5% of net sales,for the three months ended July 29, 2006, as compared to$12.3 million, or 4.8% of net sales, for the three months ended July 30,2005.

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***Six Months Ended July 29, 2006 Compared toSix Months Ended July 30, 2005***

*NetSales.**  *Net sales for the six months ended July 29,2006 increased 1.4% to $532.0 million, as compared to$524.6 million for the six months ended July 30, 2005. The increaseis attributable to a $41.0 million, or 206.6%, increase in non-comparablestore sales, primarily driven by new stores and acquired JasmineSola stores.The increase in non-comparable store sales was offset by a $33.6 million,or 6.7%, decrease in comparable store sales. In the comparable store base,average dollar sales per transaction decreased 1.1% and the number oftransactions per average store decreased 5.6%, as compared to the same periodlast year.

*GrossProfit.**  *Gross profit decreased $25.6 millionto $154.7 million, or 29.1% of net sales, for the six months ended July 29,2006, as compared to $180.3 million, or 34.4% of net sales, for thesix months ended July 30, 2005. The decrease in gross profit is primarily attributableto the decrease in comparable store sales and an increase in merchandisemarkdowns for the six months ended July 29, 2006, as compared to the sameperiod last year. In addition, buying and occupancy costs increased as apercentage of net sales primarily due to increases in real estate costs relatedto the impact of new stores opened since July 30, 2005 combined with theimpact of lower comparable store sales. Also contributing to the increase inbuying and occupancy costs is the recognition of rental expense during theconstruction period for new stores beginning in February 2006, with theadoption of FSP No. FAS 13-1, “Accounting for Rental Costs Incurred duringa Construction Period.”

*Selling,General and Administrative Expenses.**  *Selling,general and administrative expenses increased $11.5 million to$132.7 million, or 25.0% of net sales, for the six months ended July 29,2006, as compared to $121.2 million, or 23.1% of net sales, for the sixmonths ended July 30, 2005. As a percentage of net sales, selling, generaland administrative expenses increased for the six months ended July 29,2006, as compared to the six months ended July 30, 2005, due in large partto the decrease in comparable store sales. The increase in selling, general andadministrative expenses for the six months ended July 29, 2006 isprimarily due to higher store selling expenses as a result of new stores openedsince July 30, 2005.

*OperatingIncome.*   The decrease in gross profit and higherselling, general and administrative expenses, as explained above, resulted in a$37.1 million decrease in operating income to $22.0 million, or 4.1%of net sales, for the six months ended July 29, 2006, as compared to$59.1 million, or 11.3% of net sales, for the six months ended July 30,2005.

*InterestExpense, Net.*   Net interest expense decreased$1.7 million to $1.0 million, or 0.2% of net sales, for the sixmonths ended July 29, 2006, as compared to $2.7 million, or 0.5% ofnet sales, for the six months ended July 30, 2005. The decrease in netinterest expense is due to a reduction in borrowings and interest ratesobtained through the Company’s prepayment of a $75.0 million term loan on January 4,2006 using proceeds from a new $37.5 million term loan facility plus cashon-hand.

*Provisionfor Income Taxes.*   The effective tax rate for thesix months ended July 29, 2006 was 40.3%, as compared to 40.2% forthe six months ended July 30, 2005.

*Net Income.*   Forthe reasons discussed above, net income decreased $21.1 million to$12.6 million, or 2.4% of net sales, for the six months ended July 29,2006, as compared to $33.7 million, or 6.4% of net sales, for the sixmonths ended July 30, 2005.

**Non-GAAP FinancialMeasure**

The Company has provided anon-GAAP financial measure to adjust net income for the three and six monthsended July 29, 2006 and July 30, 2005. 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 

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measureof financial performance commonly used to determine the value of companies andto define standards for borrowing from institutional lenders. The non-GAAPfinancial information should be considered in addition to, not as analternative to, net income, as an indicator of the Company’s operatingperformance, and cash flows from operating activities, as a measure of theCompany’s liquidity, as determined in accordance with accounting principlesgenerally accepted in the United States. The Company may calculate EBITDAdifferently than other companies.

**Reconciliationof Net Income to EBITDA**

| ** **                    | ** ** | **Three months  ended  July 29, 2006** | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|-------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                    | ** ** | **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                    |       |                                                  | $          | 6,499                                                 |       |                                                |       | 2.5                                                 | %          |   |   | $ | 12,250 |   |   |   | 4.8 | % |   |   | $ | 12,556 |   |   |   | 2.4 | % |   |   | $ | 33,730 |   |   |   | 6.4 | % |   |
| Add back:                     |       |                                                  |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net         |       |                                                  | 477        |                                                  |       |                                                | 0.2        | %                                                   |       |   | 1,301 |   |   |   | 0.5 | % |   |   | 967 |   |   |   | 0.2 | % |   |   | 2,710 |   |   |   | 0.5 | % |   |
| Provision for income taxes    |       |                                                  | 4,405      |                                                  |       |                                                | 1.6        | %                                                   |       |   | 8,189 |   |   |   | 3.2 | % |   |   | 8,477 |   |   |   | 1.5 | % |   |   | 22,684 |   |   |   | 4.4 | % |   |
| Depreciation and amortization |       |                                                  | 7,975      |                                                  |       |                                                | 3.0        | %                                                   |       |   | 5,595 |   |   |   | 2.2 | % |   |   | 15,651 |   |   |   | 2.9 | % |   |   | 11,041 |   |   |   | 2.1 | % |   |
| EBITDA                        |       |                                                  | $          | 19,356                                                |       |                                                |       | 7.3                                                 | %          |   |   | $ | 27,335 |   |   |   | 10.7 | % |   |   | $ | 37,651 |   |   |   | 7.0 | % |   |   | $ | 70,165 |   |   |   | 13.4 | % |   |

 

**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 July 29,2006.

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

| ** **                 | ** ** | **July 29,  2006**              | ** ** | **January 28,  2006** | ** ** | **July 30,  2005** | ** ** |
|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                 | ** ** | **(Amounts in thousands)** | ** ** |
| Cash and cash  equivalents |       | $                                    | 36,888     |                       |       | $                       | 57,436     |   |   | $ | 57,239 |   |
| Working capital            |       | $                                    | 53,312     |                       |       | $                       | 47,701     |   |   | $ | 78,224 |   |

 

| ** **                                 | ** ** | **Six months  ended  July 29, 2006** | ** ** | **Six months  ended  July 30, 2005** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                 | ** ** | **(Amounts in thousands)**                | ** ** |
| Net cash provided  by operating activities |       |                                                | $          | 11,921                                              |       |   |   | $ | 33,644 |   |   |
| Net cash used in  investing activities     |       |                                                | $          | (38,057                                             | )          |   |   | $ | (64,018 | ) |   |
| Net cash provided by  financing activities |       |                                                | $          | 5,588                                               |       |   |   | $ | 2,452 |   |   |

 

**OperatingActivities**

Net cash provided byoperating activities was $11.9 million for the six months ended July 29,2006, as compared to net cash provided by operating activities of$33.6 million for the six months ended July 30, 2005. The decrease incash flow provided by operating activities for the six months ended July 29,2006, as 

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comparedto the six months ended July 30, 2005, is primarily related to thedecrease in net income, and changes in accounts receivable, accounts payableand accrued expenses, partially offset by changes in inventory, prepaidexpenses, income taxes payable and other assets and liabilities. Cash providedby other assets and liabilities for the six months ended July 29, 2006and July 30, 2005 includes $12.1 million and $10.9 millionof landlord allowances, respectively.

**InvestingActivities**

Cash used in investing activities was$38.1 million for the six months ended July 29, 2006, ascompared to $64.0 million of cash used in investing activities for the sixmonths ended July 30, 2005. Cash used in investing activities for the sixmonths ended July 29, 2006 represents capital expenditures primarilyrelated to the construction of new stores and the remodeling of existing stores.Cash used in investing activities for the six months ended July 30, 2005represents $42.8 million of capital expenditures primarily related to theconstruction of new stores and the remodeling of existing stores and $21.2million used to acquire JasmineSola.

The Company opened24 new stores and completed 19 remodels in the six months ended July 29,2006, as compared to 21 new stores and 29 remodels in the six months ended July 30,2005. The Company plans to open approximately 50 to 60 stores, including eightto ten JasmineSola stores, in fiscal year 2006, ending the year operatingapproximately 568 stores. The Company’s future capital requirements will dependprimarily on the number of new stores it opens, the number of existing storesit remodels and the timing of these expenditures.

**FinancingActivities**

Net cash provided byfinancing activities was $5.6 million for the six months ended July 29,2006, as compared to net cash provided by financing activities of$2.5 million for the six months ended July 30, 2005. Net cashprovided 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 million in fees and expenses related to the offering; quarterlypayments against the $37.5 million January 4, 2006 term loan totaling$3.0 million; and $6.7 million of proceeds from the exercise of stockoptions and the related tax benefit to the Company. Net cash provided byfinancing activities for the six months ended July 30, 2005 resultedprimarily from the tax benefit related to the exercise of stock options offsetby the repayment of debt outstanding under the terminated JasmineSola creditfacility.

**Long-Term Debt andCredit Facilities**

On January 4, 2006, the Company’s creditfacilities were amended to include: (i) an additional $37.5 millionterm loan facility maturing on March 17, 2009 bearing interest at theEurodollar rate plus 2.50%, (ii) an extension of the term of the Company’sexisting $90.0 million revolving credit facility to March 17, 2009(contains a sub-facility available for the issuance of letters of credit of upto $75.0 million), and (iii) a reduction of certain interest rates underthe revolver by as much as 50 basis points, depending upon the Company’sfinancial performance. Using the $37.5 million of proceeds from the January 4,2006 term loan plus $38.0 million of cash on-hand, the Company prepaid infull the $75.0 million March 16, 2004 term loan, which was bearinginterest at the Eurodollar rate plus 5.00%, and $0.5 million in fees related tothe refinancing. In connection with the prepayment of the March 16, 2004term loan, $0.9 million of unamortized deferred financing costs were written-offin the fourth quarter of fiscal year 2005.

As of July 29, 2006, the Company had availabilityunder its revolving credit facility of $44.7 million, net of letters ofcredit outstanding of $9.7 million, as compared to availability of$40.5 million, net of letters of credit outstanding of $14.5 million,as of July 30, 2005.

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The revolving loans underthe credit facilities bear interest, at the Company’s option, either at afloating rate equal to the Eurodollar rate plus a margin of between 1.00% and2.00% per year, depending upon the Company’s financial performance, or thePrime rate. The Company pays the lenders under the revolving credit facility amonthly fee on outstanding letters of credit at a rate of between 1.00% and1.50% per year, depending upon the Company’s financial performance. The Companypays the lenders under the revolving credit facility a monthly fee on aproportion of the unused commitments under that facility at a rate of between0.25% and 0.50% per year, depending upon the Company’s financial performance.The term loan bears interest at a floating rate equal to the Eurodollar rateplus 2.50% per year. For so long as any default under the revolving creditfacility continues, at the option of the agent or lenders, interest on therevolving loans may increase to 4.00% per year above the Eurodollar rate forEurodollar rate loans and 2.00% per year above the Prime rate for all Primerate loans, and interest on the term loan may increase to the Eurodollar rateplus 4.50% per year.

**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.*   Inventories are principally valued atthe lower of average cost or market, on a weighted average cost basis, usingthe retail method. The Company records a charge to cost of goods sold, buyingand occupancy costs for all inventory on-hand when a permanent retailprice reduction is reflected in its stores. In addition, management makesestimates and judgments regarding, among other things, initial markup,markdowns, future demand and market conditions, all of which significantlyimpact the ending inventory valuation. If actual future demand or marketconditions are different than those projected by management, future periodmerchandise margin rates may be unfavorably or favorably affected. Other significantestimates related to inventory include shrink and obsolete and excess inventorywhich are also based on historical results and management’s operatingprojections.

*Impairmentof Long-Lived Assets.*   The Company evaluateslong-lived assets in accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets” (“SFAS 144”). Long-lived assetsare evaluated for recoverability in accordance with SFAS 144 whenever events orchanges in circumstances indicate that an asset may have been impaired. Inevaluating an asset for recoverability, the Company estimates the future cashflow expected to result from the use of the asset and eventual disposition. Ifthe expected future undiscounted cash flow is less than the carrying amount ofthe asset, an impairment loss, equal to the excess of the carrying amount overthe fair value of the asset, is recognized. An impairment loss could have amaterial adverse impact on the Company’s financial condition and results ofoperations. The Company’s evaluation for the six months ended July 29,2006 resulted in no material asset impairment charge.

*Goodwilland Other Intangible Assets.*   SFAS No. 142, “Goodwilland Other Intangible Assets,” prohibits the amortization of goodwill andintangible assets with indefinite lives. The Company’s intangible assets relateprimarily to the New York & Company and JasmineSola trademarks and thegoodwill associated with the acquisition of JasmineSola on July 19, 2005.The trademarks were initially valued using the ‘‘relief from royalty method”and were determined to have indefinite lives by an independent appraiser. TheCompany tests for impairment of intangible assets annually as required by thisStatement. Management’s estimate of future cash flow is based on historicalexperience, knowledge, and market data. 

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These estimates can beaffected by factors such as those outlined in ‘‘Special Note Regarding Forward-LookingStatements and Risk Factors.” An impairment loss could have a material adverseimpact on the Company’s financial condition and results of operations. The fairvalue assigned to the JasmineSola trademarks and goodwill is $17.2 millionand $11.1 million, respectively.

*Income Taxes.*   Incometaxes are calculated in accordance with SFAS No. 109, “Accounting forIncome Taxes,” which requires the use of the liability method. Deferred taxassets and liabilities are recognized based on the difference between thefinancial statement carrying amounts of assets and liabilities and theirrespective tax bases. Inherent in the measurement of deferred balances arecertain judgments and interpretations of enacted tax laws and publishedguidance with respect to applicability to the Company’s operations. Deferredtax assets are believed to be fully realizable as management expects futuretaxable income will be sufficient to recover the asset values and, as such, norelated valuation allowance has been provided for.

**New AccountingPronouncements**

In October 2005, the FASB issued FSP No. FAS13-1, “Accounting for Rental Costs Incurred during a Construction Period.”The FSP concluded that rental costs associated with ground or buildingoperating leases that are incurred during a construction period should berecognized as rental expense. The rental costs should be included in incomefrom continuing operations. The guidance does not change application of themaximum guarantee test in EITF Issue No. 97-10, “The Effect ofLessee Involvement in Asset Construction.” The guidance in this FSP shall beapplied in the first reporting period beginning after December 15, 2005.Retrospective application in accordance with FASB Statement No. 154, “AccountingChanges and Error Corrections,” is permitted but not required; as such, theCompany adopted the provisions of the FSP beginning in February 2006 andis applying them prospectively. The Company currently anticipates that theadoption of this pronouncement will result in approximately $3.0 millionof additional rent expense in the current fiscal year, which prior to theadoption of this pronouncement would have been capitalized and amortized intodepreciation expense on a straight-line basis over the lease term, commencingon a store’s opening date. For the three months ended July 29, 2006,$1.1 million of rent expense was recognized during the constructionperiods for stores, resulting in an after-tax charge to earnings of$0.7 million, or $0.01 per diluted share. For the six months ended July 29,2006, $2.0 million of rent expense was recognized during the constructionperiods for stores, resulting in an after-tax charge to earnings of$1.2 million, or $0.02 per diluted share.

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. TheInterpretation is effective for fiscal years beginning after December 15,2006. The Company is currently evaluating the impact that the adoption of thisInterpretation will have on its financial position and results of operations.

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

*InterestRates.*   The Company’s market risks relateprimarily to changes in interest rates. The Company’s credit facilities carryfloating interest rates that are tied to the Eurodollar rate and the Prime rateand therefore, the consolidated statements of income and the consolidatedstatements of cash flows will be exposed to changes in interest rates. A 1.0%interest rate increase would increase interest expenses 

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by approximately $0.3million annually. The Company historically has not engaged in interest ratehedging activities.

*Currency Exchange Rates.*   TheCompany historically has not been exposed to currency exchange rate risks withrespect to inventory purchases as such expenditures have been, and continue tobe, denominated in U.S. Dollars. The Company purchases some of its inventoryfrom suppliers in China, for which the Company pays U.S. Dollars. In July 2005,China announced that it would increase the value of the Chinese Yuan andabandon its fixed exchange rate against the U.S. Dollar to now link to a basketof world-currencies. If the exchange rate of the Chinese Yuan to the U.S.Dollar continues to increase, the Company may experience fluctuations in thecost of inventory purchased from China and the Company would adjust its supplychain accordingly.

**ITEM 4.**                CONTROLSAND PROCEDURES

(a)   *Disclosure Controls andProcedures*.   The Company’s management, with the participationof the Company’s Principal Executive Officer and Principal Financial Officer,has evaluated the effectiveness of the Company’s disclosure controls and procedures(as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) as of the end of the periodcovered by this Quarterly Report. Based on such evaluation, the Company’sPrincipal Executive Officer and Principal Financial Officer have concludedthat, as of the end of such period, the Company’s disclosure controls andprocedures are effective.

(b)   *Internal Controls Over Financial Reporting.*   Therehave not been any changes in the Company’s internal controls over financialreporting (as such term is defined in Rules 13a 15(f) and 15d 15(f) under theSecurities Exchange Act of 1934, as amended) during the fiscal quarter to whichthis report relates that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal controls over financial reporting.

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**PART II.**

**OTHER INFORMATION**

**ITEM 1.**   LEGAL PROCEEDINGS

There have been no material changes in the Company’slegal proceedings from what was reported in its Annual Report on Form 10-Kfiled with the SEC on April 7, 2006.

**ITEM 1A.**   RISK FACTORS

There have been no material changes in the Company’srisk factors from what was reported in its Annual Report on Form 10-Kfiled with the SEC on April 7, 2006.

**ITEM 2.**   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS

None.

**ITEM 3.**   DEFAULTS UPON SENIOR SECURITIES

None.

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

In accordance withthe Company’s notice and proxy statement dated May 18, 2006, the Companyheld its Annual Meeting of Stockholders on June 21, 2006. Holders of53,533,046 shares of the Company’s common stock were present in person orby proxy, representing approximately 96.6% of the Company’s55,406,321 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             |       | 46,071,878     |       | 7,461,168           |       |
| Philip M.  Carpenter III      |       | 46,757,581     |       | 6,775,465           |       |
| Richard P.  Crystal           |       | 44,950,558     |       | 8,582,488           |       |
| M. Katherine  Dwyer           |       | 52,405,286     |       | 1,127,760           |       |
| David H. Edwab                |       | 52,404,262     |       | 1,128,784           |       |
| John D. Howard                |       | 44,558,398     |       | 8,974,648           |       |
| Louis Lipschitz               |       | 52,406,808     |       | 1,126,238           |       |
| Edward W.  Moneypenny         |       | 52,406,978     |       | 1,126,068           |       |
| Richard L. Perkal             |       | 46,071,558     |       | 7,461,488           |       |
| Arthur E. Reiner              |       | 52,227,905     |       | 1,305,141           |       |
| Ronald W. Ristau              |       | 44,904,570     |       | 8,628,476           |       |

 

(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 3, 2007:

| Votes      | ** ** | **Votes**   | ** ** | ** **      |
|------------|------------|-------------|------------|-----------------|
| **For**    | ** ** | **Against** | ** ** | **Abstentions** |
| 53,454,799 |       | 74,953      |       | 3,294           |

 

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(c)    Theproposal to approve the adoption of the 2006 Long-Term Incentive Plan:

| Votes      | ** ** | **Votes**   | ** ** | ** **      | ** ** | **Broker**    |
|------------|------------|-------------|------------|-----------------|------------|---------------|
| **For**    | ** ** | **Against** | ** ** | **Abstentions** | ** ** | **Non-Votes** |
| 38,549,135 |       | 12,289,377  |       | 10,993          |       | 2,683,541     |

 

**ITEM5.**   OTHERINFORMATION

None.

**ITEM6.**   EXHIBITS

Thefollowing exhibits are filed with this report and made a part hereof.

| 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**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, the Registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

|        |     | NEW YORK & COMPANY, INC. |
|--------|----------|----------------------------------------|
|   |     | /s/ RONALD W. RISTAU                   |
|   |     | By:                                    | Ronald W. Ristau |
|   |     | Its:                                   | *Chief Operating Officer and* |
|   | * * | * *                               | *Chief Financial Officer* |
|   | * * | * *                               | *(Principal Financial Officer)* |
|   |     | Dated:                                 | September 7, 2006 |

 

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