**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**forthe quarterly period ended July 30, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**forthe transition periodfrom                to                .**

**COMMISSIONFILE NUMBER: 1-32315**

**NEW YORK & COMPANY, INC.**

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

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x  No o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o  No x

Indicate by check markwhether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o  No x

Asof August 26, 2005, the registrant had 54,301,271 shares of common stockoutstanding.

 

----

**TABLE OF CONTENTS**
| PART I. FINANCIAL  INFORMATION |                                                                                        | 2      |   |
|-------------------------------------|---------------------------------------------------------------------------------------------|--------|--------|
| Item 1.                             | Financial  Statements                                                                       |   | 2      |   |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 11     |   |
| Item 3.                             | Quantitative  and Qualitative Disclosures About Market Risk                                 |   | 19     |   |
| Item 4.                             | Controls  and Procedures                                                                    |   | 19     |   |
| PART II. OTHER  INFORMATION    |                                                                                        | 20     |   |
| Item 1.                             | Legal  Proceedings                                                                          |   | 20     |   |
| Item 2.                             | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   | 20     |   |
| Item 3.                             | Defaults  Upon Senior Securities                                                            |   | 20     |   |
| Item 4.                             | Submission  of Matters to a Vote of Security Holders                                        |   | 20     |   |
| Item 5.                             | Other  Information                                                                          |   | 20     |   |
| Item 6.                             | Exhibits                                                                                    |   | 21     |   |

 

----

**CAUTIONARY NOTE REGARDINGFORWARD-LOOKING STATEMENTS AND RISK FACTORS**

**(Cautionary Statements Under the Private SecuritiesLitigation Reform Act of 1995)**

This quarterly report on Form 10-Q includesforward-looking statements. Some of these statements can be identified byterms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,”“continue,” “could,” “may,” “plan,” “project,” “predict” and similarexpressions, and include references to assumptions that the Company believesare reasonable and relate to its future prospects, developments and businessstrategies.

Factors that couldcause the Company’s actual results to differ materially from those expressed orimplied in such forward-looking statements include, but are not limitedto:

·       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 the Company’s quality standards;

·       theCompany’s ability to successfully integrate the newly acquired Jasmine Company, Inc.business into the Company’s existing business;

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

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

·       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;

·       thecontrol of the Company by its sponsors; and

·       risksand uncertainties as described in the Company’s documents filed with the UnitedStates Securities and Exchange Commission, including its Annual Report on Form 10-K,as filed on April 19, 2005.

The Company undertakes no obligation to revise theforward-looking statements included in this quarterly report on Form 10-Qto reflect any future events or circumstances. The Company’s actual results,performance or achievements could differ materially from the results expressedor implied by these forward-looking statements.

----

**PART I.FINANCIAL INFORMATION**

**ITEM1.**                FINANCIALSTATEMENTS

**New York & Company, Inc. andSubsidiariesConsolidated Statements of Operations (Unaudited)**
| ** **                                                                                 | ** ** | **Three Months  Ended  July 30,  2005**                                  | ** ** | **Three Months  Ended  July 31,  2004** | ** ** | **Six Months  Ended  July 30,  2005** | ** ** | **Six Months  Ended  July 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net sales                                                                                  |       |                                                                               | $          | 254,581                                           |       |                                            |       | $                                               | 242,824    |   |   |   | $ | 524,556 |   |   |   | $ | 494,919 |   |   |
| Cost of goods  sold, buying and occupancy costs                                            |       |                                                                               | 172,563    |                                              |       |                                            | 162,697    |                                            |       |   | 344,228 |   |   |   | 322,956 |   |   |
| Gross profit                                                                               |       |                                                                               | 82,018     |                                              |       |                                            | 80,127     |                                            |       |   | 180,328 |   |   |   | 171,963 |   |   |
| Selling, general  and administrative expenses                                              |       |                                                                               | 60,278     |                                              |       |                                            | 67,126     |                                            |       |   | 121,204 |   |   |   | 126,872 |   |   |
| Operating income                                                                           |       |                                                                               | 21,740     |                                              |       |                                            | 13,001     |                                            |       |   | 59,124 |   |   |   | 45,091 |   |   |
| Interest expense,  net of interest income of $611, $188, $976, and $391, respectively |       |                                                                               | 1,301      |                                              |       |                                            | 2,924      |                                            |       |   | 2,710 |   |   |   | 4,678 |   |   |
| Accrued dividends-redeemable  preferred stock                                              |       |                                                                               | —     |                                              |       |                                            | 473        |                                            |       |   | — |   |   |   | 2,703 |   |   |
| Loss on  modification and extinguishment of debt                                           |       |                                                                               | —     |                                              |       |                                            | —     |                                            |       |   | — |   |   |   | 352 |   |   |
| Loss on  derivative instrument (related to LFAS, Inc. warrant)                        |       |                                                                               | —     |                                              |       |                                            | 14,302     |                                            |       |   | — |   |   |   | 16,768 |   |   |
| Income (loss)  before income taxes                                                         |       |                                                                               | 20,439     |                                              |       |                                            | (4,698     | )                                               |       |   | 56,414 |   |   |   | 20,590 |   |   |
| Provision for  income taxes                                                                |       |                                                                               | 8,189      |                                              |       |                                            | 4,239      |                                            |       |   | 22,684 |   |   |   | 16,533 |   |   |
| Net income (loss)                                                                          |       |                                                                               | $          | 12,250                                            |       |                                            |       | $                                               | (8,937     | ) |   |   | $ | 33,730 |   |   |   | $ | 4,057 |   |   |
| Basic earnings (loss)  per share:                                                          |       |                                                                               | $          | 0.23                                              |       |                                            |       | $                                               | (0.20      | ) |   |   | $ | 0.63 |   |   |   | $ | 0.09 |   |   |
| Diluted earnings (loss)  per share:                                                        |       |                                                                               | $          | 0.21                                              |       |                                            |       | $                                               | (0.20      | ) |   |   | $ | 0.59 |   |   |   | $ | 0.08 |   |   |
| Weighted average shares  outstanding:                                                      |       |                                                                               |       |                                              |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Basic                                                                                      |       |                                                                               | 53,654     |                                              |       |                                            | 45,266     |                                            |       |   | 53,497 |   |   |   | 44,514 |   |   |
| Diluted                                                                                    |       |                                                                               | 57,197     |                                              |       |                                            | 45,266     |                                            |       |   | 56,935 |   |   |   | 51,275 |   |   |

 

See accompanying notes.

2

----

**New York &Company, Inc. and SubsidiariesConsolidated Balance Sheets**
| ** **                                                                                                                                                                                                                             | ** ** | **July 30,  2005**                                                        | ** ** | **January 29,  2005** | ** ** | **July 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                                             | ** ** | **(Unaudited)**                                                                | ** ** | **(Audited)**              | ** ** | **(Unaudited)**         | ** ** |
| ** **                                                                                                                                                                                                                             | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| **Assets**                                                                                                                                                                                                                             |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Current assets:                                                                                                                                                                                                                        |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                             |       |                                                                           | $          | 57,239                     |       |                    |       | $ | 85,161 |   |   |   | $ | 65,881 |   |   |
| Accounts receivable                                                                                                                                                                                                                    |       |                                                                           | 19,566     |                       |       |                    | 13,069     |   |   |   | 15,516 |   |   |
| Inventories, net                                                                                                                                                                                                                       |       |                                                                           | 100,977    |                       |       |                    | 93,379     |   |   |   | 80,078 |   |   |
| Prepaid expenses                                                                                                                                                                                                                       |       |                                                                           | 18,498     |                       |       |                    | 17,875     |   |   |   | 16,506 |   |   |
| Deferred income taxes                                                                                                                                                                                                                  |       |                                                                           | —     |                       |       |                    | —     |   |   |   | 1,587 |   |   |
| Other current assets                                                                                                                                                                                                                   |       |                                                                           | 2,437      |                       |       |                    | 1,256      |   |   |   | 1,401 |   |   |
| Total current assets                                                                                                                                                                                                                   |       |                                                                           | 198,717    |                       |       |                    | 210,740    |   |   |   | 180,969 |   |   |
| Property and equipment,  net                                                                                                                                                                                                           |       |                                                                           | 135,351    |                       |       |                    | 100,681    |   |   |   | 80,387 |   |   |
| Goodwill and intangible  assets                                                                                                                                                                                                   |       |                                                                           | 40,857     |                       |       |                    | 14,843     |   |   |   | 14,515 |   |   |
| Deferred income taxes                                                                                                                                                                                                                  |       |                                                                           | —     |                       |       |                    | —     |   |   |   | 2,876 |   |   |
| Other assets                                                                                                                                                                                                                           |       |                                                                           | 3,282      |                       |       |                    | 3,924      |   |   |   | 8,148 |   |   |
| Total assets                                                                                                                                                                                                                           |       |                                                                           | $          | 378,207                    |       |                    |       | $ | 330,188 |   |   |   | $ | 286,895 |   |   |
| **Liabilities and stockholders’ equity (deficit)**                                                                                                                                                                                |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                   |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                       |       |                                                                           | $          | 66,572                     |       |                    |       | $ | 74,045 |   |   |   | $ | 49,012 |   |   |
| Accrued expenses                                                                                                                                                                                                                       |       |                                                                           | 52,285     |                       |       |                    | 51,802     |   |   |   | 53,500 |   |   |
| Income taxes payable                                                                                                                                                                                                                   |       |                                                                           | —     |                       |       |                    | —     |   |   |   | 1,964 |   |   |
| Deferred income taxes                                                                                                                                                                                                                  |       |                                                                           | 1,636      |                       |       |                    | 1,788      |   |   |   | — |   |   |
| Other current  liabilities                                                                                                                                                                                                             |       |                                                                           | —     |                       |       |                    | —     |   |   |   | 33,038 |   |   |
| Total current  liabilities                                                                                                                                                                                                             |       |                                                                           | 120,493    |                       |       |                    | 127,635    |   |   |   | 137,514 |   |   |
| Long-term debt                                                                                                                                                                                                                         |       |                                                                           | 75,000     |                       |       |                    | 75,000     |   |   |   | 150,000 |   |   |
| Deferred income taxes                                                                                                                                                                                                                  |       |                                                                           | 3,017      |                       |       |                    | 6,698      |   |   |   | — |   |   |
| Series A redeemable  preferred stock, 12.5% cumulative, non-voting, par value $0.01; No  shares authorized and outstanding at July 30, 2005 and January 29,  2005; 1 share issued and outstanding at July 31, 2004 |       |                                                                           | —     |                       |       |                    | —     |   |   |   | 1 |   |   |
| Other liabilities                                                                                                                                                                                                                      |       |                                                                           | 30,370     |                       |       |                    | 17,572     |   |   |   | 13,600 |   |   |
| Total liabilities                                                                                                                                                                                                                      |       |                                                                           | 228,880    |                       |       |                    | 226,905    |   |   |   | 301,115 |   |   |
| Commitments and  contingencies                                                                                                                                                                                                         |       |                                                                           | —     |                       |       |                    | —     |   |   |   | — |   |   |
| Stockholders’ equity (deficit):                                                                                                                                                                                                   |       |                                                                           |       |                       |       |                    |       |   |   |   |   |   |   |
| Common stock, voting,  par value $0.001; 300,000 shares authorized; 54,179, 53,283, and 45,638  shares issued and outstanding at July 30, 2005, January 29, 2005,  and July 31, 2004, respectively                 |       |                                                                           | 54         |                       |       |                    | 53         |   |   |   | 46 |   |   |
| Additional paid-in  capital                                                                                                                                                                                                            |       |                                                                           | 121,763    |                       |       |                    | 109,448    |   |   |   | 4,629 |   |   |
| Retained earnings  (deficit)                                                                                                                                                                                                           |       |                                                                           | 28,214     |                       |       |                    | (5,514     | ) |   |   | (18,895 | ) |   |
| Accumulated other  comprehensive loss                                                                                                                                                                                                  |       |                                                                           | (704       | )                          |       |                    | (704       | ) |   |   | — |   |   |
| Total stockholders’  equity (deficit)                                                                                                                                                                                             |       |                                                                           | 149,327    |                       |       |                    | 103,283    |   |   |   | (14,220 | ) |   |
| Total liabilities and stockholders’ equity                                                                                                                                                                                        |       |                                                                           | $          | 378,207                    |       |                    |       | $ | 330,188 |   |   |   | $ | 286,895 |   |   |

 

See accompanying notes.

3

----

**New York &Company, Inc. and SubsidiariesConsolidated Statements of Cash Flows (Unaudited)**
| ** **                                                                        | ** ** | **Six Months  Ended  July 30, 2005** | ** ** | **Six Months  Ended  July 31, 2004** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **(Amounts in thousands)**                | ** ** |
| **Operating activities**                                                          |       |                                                |       |                                                |       |   |   |   |   |
| Net income                                                                        |       |                                                | $          | 33,730                                              |       |   |   | $ | 4,057 |   |   |
| Adjustment to reconcile net income to net cash  provided by operating activities: |       |                                                |       |                                                |       |   |   |   |   |
| Depreciation and  amortization                                                    |       |                                                | 11,041     |                                                |       |   | 9,161 |   |   |
| Amortization / write off  of deferred financing costs                             |       |                                                | 578        |                                                |       |   | 964 |   |   |
| Share-based  compensation                                                         |       |                                                | 486        |                                                |       |   | 4,915 |   |   |
| Deferred income taxes                                                             |       |                                                | (3,833     | )                                                   |       |   | (2,492 | ) |   |
| Loss on derivative  instrument                                                    |       |                                                | —     |                                                |       |   | 16,768 |   |   |
| Change in operating assets and liabilities:                                       |       |                                                |       |                                                |       |   |   |   |   |
| Accounts receivable                                                               |       |                                                | (6,497     | )                                                   |       |   | (4,650 | ) |   |
| Inventories, net                                                                  |       |                                                | (3,811     | )                                                   |       |   | (1,858 | ) |   |
| Prepaid expenses                                                                  |       |                                                | (602       | )                                                   |       |   | (1,598 | ) |   |
| Accounts payable                                                                  |       |                                                | (9,487     | )                                                   |       |   | 1,241 |   |   |
| Accrued expenses                                                                  |       |                                                | 423        |                                                |       |   | 9 |   |   |
| Income taxes payable                                                              |       |                                                | —     |                                                |       |   | (8,154 | ) |   |
| Other assets and  liabilities                                                     |       |                                                | 11,616     |                                                |       |   | (1,432 | ) |   |
| Net cash provided by  operating activities                                        |       |                                                | 33,644     |                                                |       |   | 16,931 |   |   |
| **Investing activities**                                                          |       |                                                |       |                                                |       |   |   |   |   |
| Acquisition of Jasmine  Company, Inc., net of cash acquired                  |       |                                                | (21,246    | )                                                   |       |   | — |   |   |
| Capital expenditures                                                              |       |                                                | (42,772    | )                                                   |       |   | (22,422 | ) |   |
| Net cash used in  investing activities                                            |       |                                                | (64,018    | )                                                   |       |   | (22,422 | ) |   |
| **Financing activities**                                                          |       |                                                |       |                                                |       |   |   |   |   |
| Proceeds from issuance  of debt                                                   |       |                                                | —     |                                                |       |   | 150,000 |   |   |
| Repayment of debt                                                                 |       |                                                | (1,327     | )                                                   |       |   | (82,500 | ) |   |
| Repurchase common stock  warrant                                                  |       |                                                | —     |                                                |       |   | (20,000 | ) |   |
| Payment of financing  costs                                                       |       |                                                | —     |                                                |       |   | (4,046 | ) |   |
| Redemption of  Series A preferred stock                                      |       |                                                | —     |                                                |       |   | (69,696 | ) |   |
| Proceeds from stock  subscription receivable                                      |       |                                                | —     |                                                |       |   | 222 |   |   |
| Payment of offering  costs related to initial public offering                     |       |                                                | —     |                                                |       |   | (1,241 | ) |   |
| Purchase of treasury  stock                                                       |       |                                                | —     |                                                |       |   | (173 | ) |   |
| Proceeds from exercise  of stock options                                          |       |                                                | 221        |                                                |       |   | 8 |   |   |
| Tax benefit from  exercise of stock options                                       |       |                                                | 3,558      |                                                |       |   | — |   |   |
| Net cash provided by  (used in) financing activities                              |       |                                                | 2,452      |                                                |       |   | (27,426 | ) |   |
| Net decrease in cash and  cash equivalents                                        |       |                                                | (27,922    | )                                                   |       |   | (32,917 | ) |   |
| Cash and cash  equivalents at beginning of period                                 |       |                                                | 85,161     |                                                |       |   | 98,798 |   |   |
| Cash and cash  equivalents at end of period                                       |       |                                                | $          | 57,239                                              |       |   |   | $ | 65,881 |   |   |
| **Supplemental disclosure of non-cash financing  activities**                     |       |                                                |       |                                                |       |   |   |   |   |
| Issuance of derivative  instrument for common stock warrant                       |       |                                                | $          | —                                              |       |   |   | $ | 16,271 |   |   |
| Issuance of common stock for the acquisition of Jasmine  Company, Inc.       |       |                                                | $          | 8,050                                               |       |   |   | $ | — |   |   |

 

See accompanying notes.

4

----

**New York &Company, Inc. Notes to Consolidated Financial StatementsJuly 30, 2005(Unaudited)**

**1.**   Organizationand Basis of Presentation

New York and Company, Inc. (together with itssubsidiaries, collectively the “Company”) is a leading specialty retailer offashion-oriented, moderately-priced women’s apparel. The Companydesigns and sources its proprietary branded *New York &CompanyTM* merchandise sold exclusively through its national networkof retail stores. As of July 30, 2005, the Company operated 506 retailstores in 45 states, including 14 stores from the acquisition of JasmineCompany, Inc. on July 19, 2005 (refer to Footnote 2). The targetcustomers for the Company’s *New York &CompanyTM* merchandise are fashion-conscious, value-sensitivewomen between the ages of 25 and 45 with annual household incomesranging from $40,000 to $75,000. Trademarks referenced in this quarterlyreport on Form 10-Q appear in italic type and are the property of New Yorkand Company, Inc. or its subsidiaries.

The accompanying consolidated financial statementsinclude the accounts for New York & Company, Inc. and all of itssubsidiaries, including Lerner New York Holding, Inc. (“Lerner Holding”),Lerner New York, Inc., Lernco, Inc., Nevada Receivable Factoring, Inc.,and Jasmine Company, Inc. (“JasmineSola”). The Company’s consolidatedfinancial statements include JasmineSola’s results of operations and cash flowsfrom July 19, 2005 (date of acquisition) to July 30, 2005. Allsignificant intercompany balances and transactions have been eliminated inconsolidation. Certain amounts in prior periods have been reclassified toconform to the current period presentation.

The consolidated financial statements as of July 30,2005 and July 31, 2004 and for the thirteen-weeks (“three months”)and twenty-six weeks (“six months”) ended July 30, 2005 and July 31,2004 are unaudited and are presented pursuant to the rules and regulationsof the United States Securities and Exchange Commission (“SEC”). Accordingly,these unaudited consolidated financial statements should be read in conjunctionwith the audited consolidated financial statements and notes thereto for thefiscal year ended January 29, 2005, which were filed with the Company’sAnnual Report on Form 10-K with the SEC on April 19, 2005. In theopinion of management, the accompanying consolidated financial statementsreflect all adjustments, which are of a normal recurring nature, necessary topresent fairly the financial condition, results of operations and cash flowsfor the interim periods. The terms “fiscal 2005” and “fiscal 2004” includedherein refer to the Company’s fiscal years ended January 29, 2005 and January 31,2004, respectively.

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.**   Acquisition

On July 19, 2005, the Company entered into aStock Purchase Agreement to acquire all of the outstanding shares ofJasmineSola, a Boston-based, privately held women’s retailer of upscale andcontemporary apparel, footwear and accessories under the “JasmineSola” brandname, for $22.5 million of cash on-hand and 350,000 shares of NewYork & Company, Inc. common stock, $0.001 par value, valuedat $8.1 million based upon the closing stock price of New York &Company, Inc. on July 19, 2005. The purchase price is subject to apost-closing adjustment based on JasmineSola’s working capital, long termindebtedness and certain other liabilities as of the acquisition date, andacquisition fees and expenses. This post-closing adjustment, if any, has notyet been determined. In addition, the Company will issue up to 

5

----

200,000 shares of itscommon stock as additional consideration for the acquisition of JasmineSolacontingent upon the achievement of certain earnings targets over the three fullfiscal years following the acquisition.

Thepurchase price allocation has been prepared on a preliminary basis and changesto this preliminary allocation are expected as additional informationconcerning asset and liability valuations are finalized. The preliminaryallocation resulted in goodwill of $26.0 million. The following table setsforth financial data for the three months and six months ended July 30,2005 and July 31, 2004 to give effect to the acquisition as if it had beenconsummated as of February 1, 2004:
| ** **                           | ** ** | **Three Months  Ended  July 30, 2005**                              | ** ** | **Three Months  Ended  July 31, 2004** | ** ** | **Six Months  Ended  July 30, 2005** | ** ** | **Six Months  Ended  July 31, 2004** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                           | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net sales                            |       |                                                                               | $          | 261,299                                               |       |                                                |       | $                                                   | 247,843    |   |   |   | $ | 536,310 |   |   |   | $ | 503,439 |   |   |
| Net income (loss)                    |       |                                                                               | $          | 13,801                                                |       |                                                |       | $                                                   | (8,075     | ) |   |   | $ | 35,653 |   |   |   | $ | 5,389 |   |   |
| Basic earnings (loss) per share:     |       |                                                                               | $          | 0.26                                                  |       |                                                |       | $                                                   | (0.18      | ) |   |   | $ | 0.66 |   |   |   | $ | 0.12 |   |   |
| Diluted earnings (loss) per share:   |       |                                                                               | $          | 0.24                                                  |       |                                                |       | $                                                   | (0.18      | ) |   |   | $ | 0.62 |   |   |   | $ | 0.10 |   |   |
| Weighted average shares outstanding: |       |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic                                |       |                                                                               | 53,961     |                                                  |       |                                                | 45,616     |                                                |       |   | 53,826 |   |   |   | 44,864 |   |   |
| Diluted                              |       |                                                                               | 57,504     |                                                  |       |                                                | 45,616     |                                                |       |   | 57,264 |   |   |   | 51,625 |   |   |

 

**3.**   Earnings Per Share

Basicearnings per share are computed by dividing net income by the weighted averagenumber of common shares outstanding for the period. Diluted earnings per shareare calculated based on the weighted average number of outstanding commonshares plus the dilutive effect of stock options and the common stock warrantas if they were exercised. A reconciliation between basic and diluted earningsper share is as follows:
| ** **                            | ** ** | **Three Months  Ended  July 30, 2005**                              | ** ** | **Three Months  Ended  July 31, 2004** | ** ** | **Six Months  Ended  July 30, 2005** | ** ** | **Six Months  Ended  July 31, 2004** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                            | ** ** | **(Amounts in thousands, except per share amounts)** | ** ** |
| Net income (loss)                     |       |                                                                               | $          | 12,250                                                |       |                                                |       | $                                                   | (8,937     | ) |   |   | $ | 33,730 |   |   |   | $ | 4,057 |   |   |
| *Basic  Earnings (Loss) Per Share*    |       |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Weighted-average  shares outstanding: |       |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic common shares                   |       |                                                                               | 53,654     |                                                  |       |                                                | 45,266     |                                                |       |   | 53,497 |   |   |   | 44,514 |   |   |
| Basic earnings (loss) per share       |       |                                                                               | $          | 0.23                                                  |       |                                                |       | $                                                   | (0.20      | ) |   |   | $ | 0.63 |   |   |   | $ | 0.09 |   |   |
| *Diluted Earnings (Loss) Per  Share*  |       |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Weighted-average  shares outstanding: |       |                                                                               |       |                                                  |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Basic common shares                   |       |                                                                               | 53,654     |                                                  |       |                                                | 45,266     |                                                |       |   | 53,497 |   |   |   | 44,514 |   |   |
| Plus impact of stock options          |       |                                                                               | 3,543      |                                                  |       |                                                | —     |                                                |       |   | 3,438 |   |   |   | 4,833 |   |   |
| Plus impact of common stock warrant   |       |                                                                               | —     |                                                  |       |                                                | —     |                                                |       |   | — |   |   |   | 1,928 |   |   |
| Diluted common shares                 |       |                                                                               | 57,197     |                                                  |       |                                                | 45,266     |                                                |       |   | 56,935 |   |   |   | 51,275 |   |   |
| Diluted earnings  (loss) per share    |       |                                                                               | $          | 0.21                                                  |       |                                                |       | $                                                   | (0.20      | ) |   |   | $ | 0.59 |   |   |   | $ | 0.08 |   |   |

 

The calculation of dilutedloss per share for the three months ended July 31, 2004 excludes4,375,020 shares due to their antidilutive affect.

6

----

**4.**   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 certain requirements ofthe original SFAS No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”) and requires all forms of share-based payment toemployees to be treated as compensation expense recognized in the consolidatedstatement of operations. The Company adopted SFAS 123-R in December 2004,utilizing the modified prospective method. Prior to the Company’s adoption ofSFAS 123-R, the Company followed SFAS 123 and treated all formsof share-based payment as compensation expense recognized in the consolidatedstatement of operations. Therefore, the adoption of SFAS 123-R did nothave a material impact on the Company’s consolidated financial statements.

The Company recorded share-based compensation expensein the amount of $0.3 million and $4.8 million for the three monthsended July 30, 2005 and July 31, 2004, respectively, and$0.5 million and $4.9 million for the six months ended July 30,2005 and July 31, 2004, respectively.

Included in share-based compensation expense forthe three and six months ended July 31, 2004 are the following:

Concurrently upon entering into a new credit facilityon May 19, 2004, the vesting of stock options to purchase1,854,267 shares issued pursuant to grants under the Company’s stockoption plan was accelerated. As a result, the Company recorded$0.4 million of compensation expense related to the accelerated vestingduring the three and six months ended July 31, 2004.

On May 19, 2004,certain of the Company’s executive officers were granted stock options topurchase 630,663 shares of the Company’s common stock at an exercise priceof $3.23 per share. Such options were immediately exercisable upon grant.In connection with these grants, the Company recorded $4.3 million ofcompensation expense during the three and six months ended July 31, 2004.

**5.**   Pension Plan

TheCompany sponsors a single-employer defined benefit pension plan coveringsubstantially all union employees. The plan provides retirement benefits forunion employees who have attained the age of 18 and completed425 hours of service in the twelve-month period following the dateof employment. The plan provides benefits based on length of service. TheCompany’s funding policy for the plan is to contribute annually the amountnecessary to provide for benefits based on accrued service. The Company doesnot anticipate the need to contribute to the plan for the remainder of thecurrent fiscal year. Net periodic benefit cost includes the followingcomponents:
| ** **                      | ** ** | **Three Months  Ended  July 30, 2005** | ** ** | **Three Months  Ended  July 31, 2004** | ** ** | **Six Months  Ended  July 30, 2005** | ** ** | **Six Months  Ended  July 31, 2004** | ** ** |
|---------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | **(Amounts in thousands)**                  | ** ** |
| Service cost                    |       |                                                  | $          | 73                                                    |       |                                                |       | $                                                   | 79         |   |   |   | $ | 146 |   |   |   | $ | 158 |   |   |
| Interest cost                   |       |                                                  | 130        |                                                  |       |                                                | 145        |                                                |       |   | 273 |   |   |   | 290 |   |   |
| Expected return  on plan assets |       |                                                  | (187       | )                                                     |       |                                                | (200       | )                                                   |       |   | (375 | ) |   |   | (400 | ) |   |
| Net periodic benefit  cost      |       |                                                  | $          | 16                                                    |       |                                                |       | $                                                   | 24         |   |   |   | $ | 44 |   |   |   | $ | 48 |   |   |

 

**6.**   Income TaxProvision

The income tax provisionfor 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 taxesand permanent tax differences, including accrued 

7

----

dividends—redeemablepreferred stock and the loss on derivative instrument which impacted the threeand six months ended July 31, 2004.

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

On March 16, 2004, certain terms of the Company’srevolving credit facility were amended. The Amended and Restated Loan andSecurity Agreement, dated March 16, 2004, currently consists of athree-year $90.0 million revolving credit facility (containing asub-facility available for the issuance of letters of credit of up to$75.0 million), and a three-year $75.0 million term loan facility. OnDecember 17, 2004, the Loan and Security Agreement was further amended toreduce certain interest rates by as much as 50 basis points (“amended andrestated credit facilities”), depending upon the Company’s financialperformance.

The lenders have been granted a pledge of the commonstock of Lerner Holding and certain of its subsidiaries, and a first prioritysecurity interest in substantially all other tangible and intangible assets ofNew York & Company, Inc. and certain of its subsidiaries, ascollateral for the Company’s obligations under the amended and restated creditfacilities. In addition, New York & Company, Inc. and certain ofits subsidiaries have fully and unconditionally guaranteed the creditfacilities, and such guarantees are joint and several.

On March 16, 2004, the $75.0 million termloan proceeds along with $32.2 million of cash on-hand were used to: (i) repurchasefrom Limited Brands, Inc. the 10% subordinated note for$85.0 million, which included $75.0 million of principal and allaccrued and unpaid interest; (ii) repurchase from LFAS, Inc., anaffiliate of Limited Brands, Inc., a common stock warrant to acquire 8,050,671 sharesof the Company’s common stock at $0.11 per share (the “common stockwarrant”) for $20.0 million, plus a contingent payment (see below); and (iii) pay$2.2 million of fees and expenses associated with the transactions. Suchfees represent financing fees paid primarily to the lenders and werecapitalized as deferred financing costs included in other assets on theconsolidated balance sheet, to be amortized over the life of the loan.

Unamortized deferred financing costs related to the10% subordinated note in the amount of $0.4 million were written off andreported as a loss on modification and extinguishment of debt in theconsolidated statement of operations for the six months ended July 31,2004.

In connection with the common stock warrant repurchaseon March 16, 2004, the Company entered into an agreement with LFAS, Inc.,which provided, among other things, if a) on or before December 31,2004, (i) the Company consummated a public offering of its common stock,or (ii) the Company was acquired and b) the related transaction valueexceeded $156.8 million, the Company was obligated to pay to LFAS, Inc.an amount in cash equal to approximately 6.38% of the implied equity value ofthe transaction over $156.8 million minus $4.5 million. The Companymeasured the fair value of this obligation on March 16, 2004 and reported$16.3 million as a reduction in stockholders’ equity (deficit) and as anobligation on the consolidated balance sheet. Subsequent changes in fair valueof the obligation resulted in a $29.4 million charge to earnings duringfiscal 2004, which was reported on the consolidated statement of operations asa loss on derivative instrument. In connection with the consummation of theCompany’s initial public offering on October 13, 2004, the Company paidLFAS, Inc. the obligation in the amount of $45.7 million.

On May 19, 2004, Lerner New York, Inc.entered into a new credit facility consisting of a $75.0 million termloan. The term loan proceeds were used to repurchase all but one share of theCompany’s $0.01 par value, non-voting, Series A redeemable preferredstock for $62.5 million, plus $12.5 million of accrued and unpaiddividends. The Company incurred $1.9 million of fees and expenses relatedto the transaction, which were capitalized as deferred financing costs includedin other assets on the consolidated balance sheet, to be amortized over thelife of the loan.

8

----

On October 13, 2004, the Company usedapproximately $75.2 million of the proceeds received from the initial publicoffering to repay the $75.0 million outstanding principal amount plusaccrued and unpaid interest under the term loan facility entered into on May 19,2004. In connection with the repayment of the term loan, $1.7 million ofunamortized deferred financing costs were written off and reported as a loss onmodification and extinguishment of debt in the consolidated statement ofoperations during the third fiscal quarter of last year.

On July 19, 2005,JasmineSola executed and delivered a Guaranty for itself and the ratablebenefit of the syndicate of lenders under the Amended and Restated Loan andSecurity Agreement, guaranteeing payment of the obligations under suchagreement. Immediately subsequent to the execution of the Stock PurchaseAgreement with JasmineSola, the Company repaid $1.3 million of debt owedby JasmineSola under its credit facility and terminated such facility.

**8.**   PreferredStock

On May 19, 2004, theCompany repurchased all but one share of the Company’s Series A redeemablepreferred stock. All outstanding promissory notes were repaid to the Company inconjunction with the closing of the credit facility on May 19, 2004 andthe repurchase of the Series A preferred stock. The remaining one share ofSeries A preferred stock was cancelled immediately prior to theeffectiveness of the initial public offering. Subsequently, the Company revisedits Certificate of Incorporation to authorize 5,000,000 shares ofpreferred stock, $0.001 par value. At July 30, 2005 and January 29,2005, no shares of preferred stock were outstanding.

**9.**   Common Stock

On October 6, 2004, the Company completed theinitial public offering of 11,500,000 shares of common stock, of which6,666,667 shares were offered by the Company and 4,833,333 shareswere offered by certain selling stockholders at a price to the public of$17.00 per share. Upon consummation of the initial public offering, netproceeds of $105.4 million and $76.4 million were distributed to theCompany and selling stockholders, respectively.

In connection with the acquisition of JasmineSola on July 19,2005, the Company issued 350,000 shares of common stock, $0.001 par valueto the previous owner of JasmineSola.

During the six monthsended July 30, 2005, the Company issued 545,519 shares of commonstock upon exercise of stock options.

**10.**   Legal Proceedings

A case has been filed by the Center for EnvironmentalHealth against Lerner New York, Inc. and several other retailers ofjewelry products in California. It alleges that lead in one of Lerner New York, Inc.’sjewelry products (a metal charm necklace suspended on a flexible cord) sold inCalifornia violates the state’s Proposition 65 statute, which precludes thesale of products in California that result in exposures to listed chemicalsabsent a specified warning label. The case is a companion case to two similarcases filed by the California Attorney General and an organization called AsYou Sow against several retail outlets selling such jewelry.

The Company was not named as a party in either of thecompanion cases, but the matters have been consolidated for pre-trial purposes.Violation of the statute exposes the seller to fines as well as injunctiverelief. The complaint does not include a request for a specific fine amount.The case against Lerner New York, Inc. is in the process of mediation thatis intended to resolve the case without substantial additional litigation.

9

----

There are other variousclaims, lawsuits and pending actions against the Company arising in the normalcourse of the Company’s business. It is the opinion of management that theultimate resolution of these matters will not have a material effect on theCompany’s financial condition, results of operations or cash flows.

**11.**   RecentAccounting Pronouncements

In July 2005, the FASB issued proposed FSP No. FAS13-b, “Accounting for Rental Costs Incurred during a Construction Period.”This FSP proposes that rental costs associated with ground or buildingoperating leases that are incurred during a construction period be expensed forreporting periods beginning after September 15, 2005. The proposed FSPwould permit, but not require, retrospective application. If issued asproposed, the Company would adopt the provisions of the FSP and apply themgoing forward.

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections—a replacement of APB Opinion No. 20 and FASBStatement No. 3” (“SFAS No. 154”). SFAS No. 154 requiresretrospective application to prior periods’ financial statements for avoluntary change in accounting principle, unless it is impracticable todetermine the period-specific effects or the cumulative effect of the change. SFASNo. 154 also applies to changes required by an accounting pronouncement inthe unusual instance that the pronouncement does not include specifictransition provisions and makes a distinction between retrospective applicationof an accounting principle and the restatement of financial statements toreflect the correction of an error. Additionally, SFAS No. 154 requiresthat a change in depreciation, amortization, or depletion method forlong-lived, nonfinancial assets be accounted for as a change in accountingestimate effected by a change in accounting principle. SFAS No. 154 iseffective for accounting changes and correction of errors made in fiscal yearsbeginning after December 15, 2005. The Company does not believe that theadoption of this pronouncement will have a material impact on the Company’sconsolidated financial statements.

In December 2004, theFASB published SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS123-R”). SFAS 123-R retains certain requirements of the originalSFAS 123 and requires all forms of share-based payment to employees to betreated as compensation expense recognized in the consolidated statement ofoperations. The Company adopted SFAS 123-R in December 2004,utilizing the modified prospective method. Prior to the Company’s adoption ofSFAS 123-R, the Company followed SFAS 123 and treated all forms ofshare-based payment as compensation expense recognized in the consolidatedstatement of operations. Therefore, the adoption of SFAS 123-R didnot have a material impact on the Company’s consolidated financial statements.

**12.**   Subsequent Events

As a result of Hurricane Katrina in August 2005,the Company temporarily closed ten stores and indefinitely closed five stores. TheCompany is insured, subject to deductibles, against damages for all 15 stores,and at the present time does not anticipate that these store closures will havea significant impact on its financial condition.

10

----

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

**Overview**

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 fourth quarter. Any decreasein sales or margins during this period in any given year could have adisproportionate effect on the Company’s financial condition and results ofoperations. Seasonal fluctuations also affect inventory levels: the Companymust carry a significant amount of inventory before the holiday season sellingperiod.

Net sales for the three months ended July 30,2005 increased 4.9% to $254.6 million, as compared to $242.8 millionfor the same period last year. Net sales for the six months ended July 30,2005 increased 6.0% to $524.6 million, as compared to $494.9 millionfor the same period last year. Comparable store sales increased 0.4% for thethree months ended July 30, 2005, as compared to a comparable store salesincrease of 14.1% for the same period last year. Comparable store salesincreased 2.3% for the six months ended July 30, 2005, as compared to acomparable store sales increase of 14.1% for the same period last year. Salesper selling square foot for the three months ended July 30,2005 increased 6.8% to $79, as compared to $74 for the same periodlast year. Sales per selling square foot for the six months ended July 30,2005 increased 8.7% to $163, as compared to $150 for the same periodlast year.

Capital spending for the six months ended July 31,2005 was $42.8 million, compared to $22.4 million for the same period last year.The $42.8 million of capital spending represents $40.2 millionrelated to the construction of new stores and the remodeling of existing storesand $2.6 million related to non-store capital projects, which principallyrepresent information technology enhancements. During the first six months offiscal 2005, the Company successfully opened 21 new stores, acquired 14 storesin the JasmineSola acquisition, closed five stores, and completed 29 remodels,ending the period operating 506 stores in 45 states, as compared to 474 storesat July 31, 2004. Total selling square footage at July 30, 2005 was3.237 million, compared to 3.293 million at July 31, 2004.

The Company’s balance sheet included $57.2 million incash and working capital of $78.2 million at July 30, 2005.  At July 30, 2005, inventory was $101.0million, including $3.4 million of inventory acquired in the acquisition ofJasmineSola, as compared to $80.1 million of inventory at July 31, 2004. Theincrease in inventory compared to last year is due to new store openings andthe acceleration of fall inventory receipts due to an expectation of importrestrictions on goods from China and changes in FOB vendor terms.

At July 30, 2005, non-current assets totaled$179.5 million, representing a $73.6 million increase, as compared to $105.9million at July 31, 2004. The increase is primarily due to $26.0 millionin goodwill recorded in connection with the acquisition of JasmineSola and$42.8 million of capital spending. At July 30, 2005, non-currentliabilities amounted to $108.4 million, representing a $55.2 million decrease,as compared to $163.6 million at July 31, 2004. The decrease is primarilydue to the repayment of the $75.0 million term loan entered into on May 19,2004 offset by a $14.4 million increase in construction allowances.

The Company’s business is impacted by economicconditions, which affect the level of consumer spending as well as the cost ofmerchandise the Company offers. These economic factors include interest rates,economic growth, unemployment levels, energy prices, consumer confidence andconsumer spending, among others. Consumer preferences and economic conditionsmay change from time to time in the markets in which the Company operates andmay negatively impact its net sales and profitability. As economic conditionschange, there can be no assurance that future trends and fluctuations ineconomic 

11

----

factors will not have amaterial adverse effect on the Company’s financial condition and results ofoperations. The Company’s strategy is to focus on its customers, currentfashion trends, merchandise testing, value pricing and responsive inventorymanagement to enable the Company to react quickly to changes as they occur.

Quotas on textiles andclothing, under the World Trade Organization Agreement on Textiles and Clothingas implemented on January 1, 1995, were phased out over a period of tenyears, ending January 1, 2005. This phase-out eliminated existingrestrictions on the Company’s ability to import clothing. Chinese textileimports into the U.S. increased significantly in the first six months of 2005.In the past, the U.S. federal interagency committee CITA (Committee forImplementation of Textile Agreements) has imposed safeguard limitations onChina, and the Company believes CITA will impose restrictions on China in thefuture. The Company has been adjusting its inventory receipt planning andsupply chain accordingly and continues to rely on its diversified manufacturingbase to mitigate risks associated with these expected restrictions. At thistime, the Company cannot assess how potential future restrictions will impactits operations.

**General**

*Net Sales.  *Netsales consist of sales from comparable and non-comparable stores. A store isincluded in the comparable store sales calculation after it has completed13 full fiscal months of operation from its original opening date or onceit has been reopened after remodeling. Non-comparable store sales includestores which have not completed 13 full fiscal months of operations, salesfrom closed stores and stores closed during periods of remodeling. Net salesare recorded when the customer takes possession of the merchandise and thepurchases are paid for, primarily with either cash or credit card. Revenue forgift certificate sales and store credits is recognized at redemption. Prior toredemption, gift certificate sales and store credits are recorded as a liability.A reserve is provided for projected merchandise returns based on priorexperience.

*Cost of Goods Sold, Buying andOccupancy Costs.  *Cost of goods sold, buying andoccupancy costs is comprised of direct inventory costs for merchandise sold,distribution, payroll and related costs for design, sourcing, production,merchandising, planning and allocation personnel, and store occupancy andrelated costs.

*Gross Profit.  *Grossprofit represents net sales less cost of goods sold, buying and occupancycosts.

*Selling,General and Administrative Expenses.  *Selling, generaland administrative 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.

12

----

**Results of Operations**

Thefollowing tables summarize the Company’s results of operations as a percentageof net sales and selected store operating data, including store count andselling square feet, for the three and six months ended July 30,2005 and July 31, 2004:
| ** **                                         | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Three months  ended  July 31, 2004** | ** ** | **Six months  ended  July 30, 2005** | ** ** | **Six months  ended  July 31, 2004** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net sales                                          |       |                                                  | 100.0      | %                                                     |       |                                                | 100.0      | %                                                   |       |   | 100.0 | % |   |   | 100.0 | % |   |
| Cost of goods sold,  buying and occupancy costs    |       |                                                  | 67.8       | %                                                     |       |                                                | 67.0       | %                                                   |       |   | 65.6 | % |   |   | 65.3 | % |   |
| Gross profit                                       |       |                                                  | 32.2       | %                                                     |       |                                                | 33.0       | %                                                   |       |   | 34.4 | % |   |   | 34.7 | % |   |
| Selling, general and  administrative expenses      |       |                                                  | 23.7       | %                                                     |       |                                                | 27.6       | %                                                   |       |   | 23.1 | % |   |   | 25.6 | % |   |
| Operating income                                   |       |                                                  | 8.5        | %                                                     |       |                                                | 5.4        | %                                                   |       |   | 11.3 | % |   |   | 9.1 | % |   |
| Interest expense, net                              |       |                                                  | 0.5        | %                                                     |       |                                                | 1.2        | %                                                   |       |   | 0.5 | % |   |   | 0.9 | % |   |
| Accrued  dividends—redeemable preferred stock |       |                                                  | —     | %                                                     |       |                                                | 0.2        | %                                                   |       |   | — | % |   |   | 0.5 | % |   |
| Loss on modification and  extinguishment of debt   |       |                                                  | —     | %                                                     |       |                                                | —     | %                                                   |       |   | — | % |   |   | 0.1 | % |   |
| Loss on derivative  instrument                     |       |                                                  | —     | %                                                     |       |                                                | 5.9        | %                                                   |       |   | — | % |   |   | 3.4 | % |   |
| Income (loss) before  income taxes                 |       |                                                  | 8.0        | %                                                     |       |                                                | (1.9       | )%                                                  |       |   | 10.8 | % |   |   | 4.2 | % |   |
| Provision for income  taxes                        |       |                                                  | 3.2        | %                                                     |       |                                                | 1.8        | %                                                   |       |   | 4.4 | % |   |   | 3.4 | % |   |
| Net income (loss)                                  |       |                                                  | 4.8        | %                                                     |       |                                                | (3.7       | )%                                                  |       |   | 6.4 | % |   |   | 0.8 | % |   |

 
| ** **                                    | ** ** | **Three months  ended  July 30, 2005**                             | ** ** | **Three months  ended  July 31, 2004** | ** ** | **Six months  ended  July 30, 2005** | ** ** | **Six months  ended  July 31, 2004** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **(Dollars in thousands, except square foot data)** | ** ** |
| **Selected operating data:**                  | ** ** |                                                                              | ** ** | ** **                                            |       |                                                | ** ** | ** **                                          |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total net sales growth                        |       |                                                                              | 4.9        | %                                                     |       |                                                | 14.2       | %                                                   |       |   | 6.0 | % |   |   | 13.4 | % |   |
| Comparable store sales  increase              |       |                                                                              | 0.4        | %                                                     |       |                                                | 14.1       | %                                                   |       |   | 2.3 | % |   |   | 14.1 | % |   |
| Net sales per average  selling square foot(1) |       |                                                                              | $          | 79                                                    | ** ** |                                                |       | $                                                   | 74         | ** ** |   |   | $ | 163 | ** ** |   |   | $ | 150 | ** ** |   |
| Net sales per average  store(2)               |       |                                                                              | $          | 515                                                   | ** ** |                                                |       | $                                                   | 513        | ** ** |   |   | $ | 1,068 | ** ** |   |   | $ | 1,051 | ** ** |   |
| Average selling square footage per store(3)   |       |                                                                              | 6,398      | ** **                                            |       |                                                | 6,946      | ** **                                          |       |   | 6,398 | ** ** |   |   | 6,946 | ** ** |   |

----

(1)    Netsales per average selling square foot is defined as net sales divided by theaverage of beginning and end of period selling square feet.

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

(3)    Averageselling square foot per store is defined as end of period selling square feetdivided by end of period number of stores.
| ** **                                             | ** ** | **Three months  ended  July 30, 2005** | ** ** | **Three months  ended  July 31, 2004** | ** ** | **Six months  ended  July 30, 2005** | ** ** | **Six months  ended  July 31, 2004** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                             | ** ** | **Store  Count**                                      | ** ** | **Selling  Square Feet**                         | ** ** | **Store  Count**                                    | ** ** | **Selling  Square Feet**                       | ** ** | **Store  Count** | ** ** | **Selling  Square Feet** | ** ** | **Store  Count** | ** ** | **Selling  Square Feet** | ** ** |
| Stores open, beginning  of period                      |       |                                                  | 482        |                                                  |       |                                                | 3,196,211  |                                                |       |   | 472 |   |   |   | 3,312,643 |   |   |   | 476 |   |   |   | 3,189,770 |   |   |   | 468 |   |   |   | 3,318,466 |   |   |
| New stores                                             |       |                                                  | 13         |                                                  |       |                                                | 59,508     |                                                |       |   | 4 |   |   |   | 14,854 |   |   |   | 21 |   |   |   | 92,416 |   |   |   | 9 |   |   |   | 39,691 |   |   |
| Acquired stores                                        |       |                                                  | 14         |                                                  |       |                                                | 38,760     |                                                |       |   | — |   |   |   | — |   |   |   | 14 |   |   |   | 38,760 |   |   |   | — |   |   |   | — |   |   |
| Closed stores                                          |       |                                                  | (3         | )                                                     |       |                                                | (16,404    | )                                                   |       |   | (2 | ) |   |   | (14,352 | ) |   |   | (5 | ) |   |   | (27,048 | ) |   |   | (3 | ) |   |   | (21,029 | ) |   |
| Net impact of remodeled  stores on selling square feet |       |                                                  | —     |                                                  |       |                                                | (40,604    | )                                                   |       |   | — |   |   |   | (20,515 | ) |   |   | — |   |   |   | (56,427 | ) |   |   | — |   |   |   | (44,498 | ) |   |
| Stores open, end of  period                            |       |                                                  | 506        |                                                  |       |                                                | 3,237,471  |                                                |       |   | 474 |   |   |   | 3,292,630 |   |   |   | 506 |   |   |   | 3,237,471 |   |   |   | 474 |   |   |   | 3,292,630 |   |   |

 

13

----

***Three Months Ended July 30, 2005 Compared toThree Months Ended July 31, 2004***

*Net Sales.  *Netsales for the three months ended July 30, 2005 increased 4.9% to$254.6 million, as compared to $242.8 million for the three monthsended July 31, 2004. The increase is attributable to a $1.0 million,or 0.4%, increase in comparable store sales and a $10.8 million, or 136.1%,increase in non-comparable store sales. Driving non-comparable storesales for the three months ended July 30, 2005 was the opening of 13 newstores and the acquisition of 14 JasmineSola stores, as compared to openingfour new stores during the same period last year.

*Gross Profit.  *Grossprofit increased $1.9 million to $82.0 million, or 32.2% of net sales, forthe three months ended July 30, 2005, as compared to$80.1 million, or 33.0% of net sales, for the three months ended July 31,2004. The decrease as a percentage of net sales is primarily due to a decreasein merchandise margin resulting from higher markdowns for the three monthsended July 30, 2005 as compared to the same period last year.

*Selling, General and AdministrativeExpenses.  *Selling, general and administrative expensesdecreased $6.8 million to $60.3 million, or 23.7% of net sales, for the threemonths ended July 30, 2005, as compared to $67.1 million, or 27.6% ofnet sales, for the three months ended July 31, 2004. The three monthsended July 31, 2004 included non recurring charges of $0.4 million relatedto the terminated advisory services agreement with Bear Stearns MerchantManager II, LLC and $4.3 million related to a one-time grant of stock optionsto certain key executives. In addition to the absence of these one timeexpenses in fiscal 2005, the Company experienced a 2.0% improvement in selling,general and administrative expenses as a percentage of net sales, whichreflects effective expense management and reductions in marketing expenses dueto a shift in spending towards the first three months of fiscal 2005.

*Operating Income.  *Operatingincome increased $8.7 million to $21.7 million, or 8.5% of net sales,for the three months ended July 30, 2005, as compared to$13.0 million, or 5.4% of net sales, for the three months ended July 31,2004.

*Interest Expense, Net.  *Netinterest expense decreased $1.6 million to $1.3 million for the three monthsended July 30, 2005, as compared to $2.9 million for the three monthsended July 31, 2004. The decrease in net interest expense is due tofluctuations in borrowings and reduction in interest rates obtained through theCompany’s refinancing activities on March 16, 2004 and May 19, 2004.

*Accrued Dividends—RedeemablePreferred Stock.  *On May 19, 2004, the Companyredeemed substantially all of its Series A redeemable preferred stock.Immediately prior to the effectiveness of the Company’s initial publicoffering, the remaining one outstanding share of the Company’s Series Aredeemable preferred stock was cancelled.

*Loss on Derivative Instrument.  *Inconnection with the repurchase of the common stock warrant on March 16,2004 from LFAS, Inc., the Company entered into an agreement with LFAS, Inc.that required it to pay LFAS, Inc. an amount based on the implied equityvalue of the Company upon a sale of the Company or the consummation of a publicoffering. The Company measured the fair value of the contingent payment (“derivativeinstrument”) on March 16, 2004 and reported $16.3 million as areduction to stockholders’ equity and as a current liability. During the threemonths ended May 1, 2004, July 31, 2004, and October 30,2004, the Company remeasured the fair value of the derivative instrument, whichresulted in charges to earnings of $2.5 million, $14.3 million, and $12.6million, respectively. In connection with the consummation of the initialpublic offering, the Company paid off its obligation to LFAS, Inc. in theamount of $45.7 million and, therefore, will not have incurred any suchcharges in fiscal year 2005.

14

----

*Provision for Income Taxes.  *Theeffective tax rate for the three months ended July 30, 2005 was40.1%, as compared to 90.2% for the three months ended July 31, 2004. Thehigher rate incurred in the prior year period was a direct result ofnon-deductible amounts primarily relating to the loss on derivative instrumentof $14.3 million and accrued dividends—redeemable preferred stock of$0.5 million. The Company incurred no such non-deductible expenses duringthe three months ended July 30, 2005, which resulted in a lower effectivetax rate.

*NetIncome (loss).  *For the reasons discussed above, netincome increased $21.2 million to $12.3 million, or 4.8% of net sales, for thethree months ended July 30, 2005, from a loss of  $(8.9) million, or (3.7)% of net sales,for the three months ended July 31, 2004.

***Six Months Ended July 30, 2005 Compared toSix Months Ended July 31, 2004***

*NetSales.  *Net sales for the six months ended July 30,2005 increased 6.0% to $524.6 million, as compared to$494.9 million for the six months ended July 31, 2004. The increaseis attributable to a $10.8 million, or 2.3%, increase in comparable storesales and an $18.9 million, or 125.9%, increase in non-comparable storesales. Driving non-comparable store sales for the six months ended July 30,2005 was the opening of 21 new stores and the acquisition of 14 JasmineSolastores, as compared to opening nine new stores in the same period last year.

*GrossProfit.  *Gross profit increased $8.3 million to$180.3 million, or 34.4% of net sales, for the six months ended July 30,2005, as compared to $172.0 million, or 34.7% of net sales, for the sixmonths ended July 31, 2004. The increase in gross profit is primarily attributableto the increase in net sales during the six months ended July 30, 2005, ascompared to the same period last year. Improvements in buying and occupancycosts as a percentage of net sales for the six months ended July 30, 2005were offset by a decrease in merchandise margin resulting from increasedmarkdowns as compared to the same period last year.

*Selling,General and Administrative Expenses.  *Selling, generaland administrative expenses decreased $5.7 million to $121.2 million, or 23.1%of net sales, for the six months ended July 30, 2005, as compared to$126.9 million, or 25.6% of net sales, for the six months ended July 31,2004. The first six months of fiscal 2004 included non recurring charges of$1.4 million related to the terminated advisory services agreement with BearStearns Merchant Manager II, LLC and $4.3 million related to a one-time grantof stock options to certain key executives. In addition to the absence of theseone time expenses in fiscal 2005, the Company experienced a 1.4% improvement inselling, general and administrative expenses as a percentage of net sales,which reflects effective expense management and leverage in the Company’sexpense structure.

*OperatingIncome.  *Operating income increased$14.0 million to $59.1 million, or 11.3% of net sales, for the six monthsended July 30, 2005, as compared to $45.1 million, or 9.1% ofnet sales, for the six months ended July 31, 2004.

*InterestExpense, Net.  *Net interest expense decreased $2.0million to $2.7 million for the six months ended July 30, 2005, ascompared to $4.7 million for the six months ended July 31, 2004. Thedecrease in net interest expense is due to fluctuations in borrowings andreduction in interest rates obtained through the Company’s refinancingactivities on March 16, 2004 and May 19, 2004.

*AccruedDividends—Redeemable Preferred Stock.  *On May 19,2004, the Company redeemed substantially all of its Series A redeemablepreferred stock. Immediately prior to the effectiveness of the Company’sinitial public offering, the remaining one outstanding share of the Company’s Series Aredeemable preferred stock was cancelled.

*Losson Modification and Extinguishment of Debt.  *On March 16,2004, the Company repaid its $75.0 million, 10% subordinated note due2009 with proceeds from the Company’s amended and restated creditfacility, which resulted in a $0.4 million charge associated with thewrite-off of unamortized deferred financing costs. The Company had no suchcharges during the six months ended July 30, 2005.

15

----

*Loss onDerivative Instrument.  *In connection with therepurchase of the common stock warrant on March 16, 2004 from LFAS, Inc.,the Company entered into an agreement with LFAS, Inc. that required it topay LFAS, Inc. an amount based on the implied equity value of the Companyupon a sale of the Company or the consummation of a public offering. TheCompany measured the fair value of the contingent payment (“derivative instrument”)on March 16, 2004 and reported $16.3 million as a reduction tostockholders’ equity and as a current liability. During the three months ended May 1,2004, July 31, 2004, and October 30, 2004, the Company remeasured thefair value of the derivative instrument, which resulted in charges to earningsof $2.5 million, $14.3 million, and $12.6 million, respectively. Inconnection with the consummation of the initial public offering, the Companypaid off its obligation to LFAS, Inc. in the amount of $45.7 millionand, therefore, will not have incurred any such charges in fiscal year 2005.

*Provisionfor Income Taxes.  *The effective tax rate for the sixmonths ended July 30, 2005 was 40.2%, as compared to 80.3% for thesix months ended July 31, 2004. The higher rate incurred in the prior yearperiod was a direct result of non-deductible amounts primarily relating to theloss on derivative instrument of $16.8 million and accrued dividends—redeemablepreferred stock of $2.7 million. The Company incurred no such non-deductibleexpenses during the six months ended July 30, 2005, which resulted in alower effective tax rate.

*NetIncome.  *For the reasons discussed above, net incomeincreased $29.6 million to $33.7 million, or 6.4% of net sales, for the sixmonths ended July 30, 2005, from $4.1 million, or 0.8% of netsales, for the six months ended July 31, 2004.

**Liquidityand Capital Resources**

The Company’s primary usesof cash are to fund working capital, operating expenses, debt service andcapital expenditures related primarily to the construction of new stores andremodeling of existing stores. Historically, the Company has financed theserequirements from internally generated cash flow. The Company believes cashflows from operations, supplemented by borrowings under its revolving creditfacility, if needed, will be sufficient to fund its capital and working capitalrequirements, as well as debt service obligations, for the next 12 months. TheCompany is in compliance with all debt covenants as of July 30, 2005.

Thefollowing tables contain information regarding the Company’s liquidity andcapital resources:
| ** **                 | ** ** | **July 30,  2005**              | ** ** | **January 29,  2005** | ** ** | **July 31,  2004** | ** ** |
|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                 | ** ** | **(Amounts in thousands)** | ** ** |
| Cash and cash  equivalents |       | $                                    | 57,239     |                       |       | $                       | 85,161     |   |   | $ | 65,881 |   |
| Working capital(1)         |       | $                                    | 78,224     |                       |       | $                       | 83,105     |   |   | $ | 43,455 |   |

----

(1)    Included asa reduction to working capital at July 31, 2004 is the $33.0 millionfair value of the derivative instrument entered into in connection with therepurchase of the common stock warrant on March 16, 2004.
| ** **                                           | ** ** | **Six months  ended  July 30, 2005** | ** ** | **Six months  ended  July 31, 2004** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **(Amounts in thousands)**                | ** ** |
| Net cash provided  by operating activities           |       |                                                | $          | 33,644                                              |       |   |   | $ | 16,931 |   |   |
| Net cash used in  investing activities               |       |                                                | $          | (64,018                                             | )          |   |   | $ | (22,422 | ) |   |
| Net cash provided by  (used in) financing activities |       |                                                | $          | 2,452                                               |       |   |   | $ | (27,426 | ) |   |

 

***OperatingActivities***

Net cash provided byoperating activities was $33.6 million for the six months ended July 30,2005, as compared to net cash provided by operating activities of$16.9 million for the six months ended July 31, 2004. Theincrease in cash flow provided by operating activities for the six months endedJuly 30, 

16

----

2005, ascompared to the same period last year, is primarily related to an increase innet income plus changes in income taxes payable and other liabilities,partially offset by changes in accounts receivable, inventory and accountspayable.

***InvestingActivities***

Cash used in investingactivities was $64.0 million for the six months ended July 30,2005, as compared to $22.4 million of cash used in investingactivities for the six months ended July 31, 2004. These amounts includethe capitalization of rent related to build-out periods (or rent holidays) forthe Company’s stores and exclude construction allowances, which are reported inoperating activities on the consolidated statement of cash flows. The increasein cash used in investing activities is due to the acquisition of JasmineSolaand increased capital expenditures related to the construction of 21 new storesand the remodeling of 29 existing stores in the six months ended July 30,2005, as compared to nine new stores and 18 remodeled stores in the six monthsended July 31, 2004.

The Company plans to haveopened 45 to 50 new stores and remodeled 40 to 50 stores during fiscal year2005, ending the year operating approximately 526 stores, including the 14stores acquired in the JasmineSola acquisition.

The Company projects totalcapital expenditures, including capitalized rent related to build-out periods(or rent holidays) for its stores, to be approximately $80.0 million infiscal year 2005, as compared to $54.3 million in fiscal year 2004. Theseamounts exclude construction allowances. Historically, the Company has financedsuch capital expenditures with cash from operations and borrowings under itscredit facility, if needed. The Company believes that it will continue tofinance ongoing capital expenditures in this manner.

***FinancingActivities***

Net cash provided byfinancing activities was $2.5 million for the six months ended July 30,2005, as compared to net cash used in financing activities of$27.4 million for the six months ended July 31, 2004. Net cashprovided by financing activities for the six months ended July 30, 2005resulted primarily from the tax benefit related to the exercise of stockoptions offset by the repayment of debt outstanding under the terminatedJasmineSola credit facility. Net cash used in financing activities for the sixmonths ended July 31, 2004 represents proceeds of $75.0 millionfrom the amended and restated credit facilities entered into on March 16,2004; proceeds of $75.0 million from the credit facility entered into on May 19,2004; the repayment of a $75.0 million, 10% subordinated note, plusaccrued and unpaid interest; $20.0 million used to repurchase the commonstock warrant from LFAS, Inc.; the payment of $72.4 million in connectionwith the redemption of the Company’s outstanding Series A redeemablepreferred stock; the payment of $4.1 million in fees and expenses relatedto the March 16, 2004 and May 19, 2004 refinancings; and the paymentof $1.2 million of offering costs related to the Company’s initial publicoffering.

**Long-TermDebt and Credit Facilities**

The Company’s amended andrestated credit facilities currently consist of a three-year $90.0 millionrevolving credit facility (containing a sub-facility available for the issuanceof letters of credit of up to $75.0 million), and a three-year$75.0 million term loan facility. As of July 30, 2005, the Companyhad availability under its revolving credit facility of $40.5 million, netof letter of credit accommodations outstanding of $14.5 million, ascompared to availability of $29.9 million, net of letter of creditaccommodations outstanding of $18.5 million, as of July 31, 2004. Thereduction in its letters of credit reflects changes in the Company’s terms withvendors.

The revolving loans underthe amended and restated credit facilities bear interest, at the Company’soption, either at a floating rate equal to the Eurodollar rate plus a margin ofbetween 1.50% and 2.00% per year, depending upon the Company’s financialperformance, or the Prime rate. The Company 

17

----

pays thelenders under the revolving credit facility a monthly fee on outstandingletters of credit at a rate of between 1.00% and 1.50%, depending upon theCompany’s financial performance. The Company pays the lenders under therevolving credit facility a monthly fee on a proportion of the unusedcommitments under that facility at a rate of between 0.25% and 0.50% per annum,depending upon the Company’s financial performance. The term loan bearsinterest at a floating rate equal to the greater of 6.75% or the Eurodollarrate plus 5.00% 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 greater of 8.75%or the Eurodollar rate plus 7.00% per year. The Company’s amended and restatedcredit facilities contain certain covenants, including restrictions on theCompany’s ability to pay dividends on its common stock, incur additionalindebtedness and to prepay, redeem or repurchase other debt. Subject to suchrestrictions, the Company may incur more debt for working capital, capitalexpenditures, acquisitions, and for other purposes.

**CriticalAccounting Policies**

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States requires management to make estimates andassumptions that impact the amounts reported on the Company’s consolidatedfinancial statements and related notes. On an ongoing basis, managementevaluates its estimates and judgments, including those related to inventories,long-lived assets and the fair market value of assets acquired. Managementbases its estimates and judgments on historical experience and various otherfactors that are believed to be reasonable under the circumstances. Actualresults may differ materially from these judgments. Management believes thefollowing estimates and assumptions are most significant to reporting theCompany’s financial condition and results of operations. These estimates andassumptions are the same as those described in the Company’s Annual Report on Form 10-Kfiled with the SEC on April 19, 2005.

*Inventory Valuation.  *Inventoriesare valued at the lower of cost or market, on a weighted average cost basisusing the retail method. The Company calculates inventory costs on an individualitem-class level. The Company records a charge to cost of goods sold, buyingand occupancy costs when a permanent retail price reduction is reflected in thestores. In addition, management makes estimates and judgments regarding initialmarkups, markdowns, future demand and market conditions. These assumptions canhave a significant impact on financial condition and current and futureoperating results. The Company’s estimates have been historically valid. At theend of each season, goods related specifically to that season are marked downand valued at the estimated current retail value. The use of the retail methodand the recording of markdowns effectively value the inventory at the lower ofcost or market. In addition, an inventory loss estimate is recorded eachperiod. These estimates are adjusted based upon physical inventories performedtwice per fiscal year.

*Impairmentof Long-Lived Assets.  *The Company evaluates long-livedassets in accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets” (“SFAS 144”). Long-livedassets are evaluated for recoverability in accordance with SFAS 144 wheneverevents or changes in circumstances indicate that an asset may have beenimpaired. In evaluating an asset for recoverability, the Company estimates thefuture cash flow expected to result from the use of the asset and eventualdisposition. If the sum of the expected future undiscounted cash flow is lessthan the carrying amount of the asset, an impairment loss, equal to the excessof the carrying amount over the fair value of the asset, is recognized. Animpairment loss could have a material adverse impact on the Company’s financialcondition and results of operations. The Company’s evaluation for the sixmonths ended July 30, 2005 resulted in no material asset impairmentcharge.

*Goodwilland Other Intangible Assets.  *SFAS No. 142, “Goodwilland Other Intangible Assets,” prohibits the amortization of goodwill andintangible assets with indefinite lives. The Company tests for impairment ofintangible assets annually as required by this Statement. The Company’sintangible assets 

18

----

relate primarily tothe *New York & Company* trademarkand goodwill associated with the acquisition of JasmineSola on July 19,2005. The trademark was initially valued using the “relief from royalty method”and determined to have an indefinite life by an independent appraiser. Management’sestimate of future cash flow is based on historical experience, knowledge, andmarket data. These estimates can be affected by factors such as those outlinedin “Cautionary Note Regarding Forward-Looking Statements and Risk Factors.” Animpairment loss could have a material adverse impact on the Company’s financialcondition and results of operations. The Company’s fiscal year 2004 testsdid not result in any impairment charge and the Company has no reason tobelieve any impairment occurred during the six months ended July 30, 2005.The amount of goodwill associated with the acquisition of JasmineSola ispreliminary and is expected to be adjusted as additional information concerningasset and liability valuations are finalized.

*IncomeTaxes.  *Income taxes are calculated in accordance withSFAS No. 109, “Accounting for Income Taxes,” which requires the use of theliability method. Deferred tax assets and liabilities are recognized based onthe difference between the financial statement carrying amounts of assets andliabilities and their respective tax bases. Inherent in the measurement ofdeferred balances are certain judgments and interpretations of enacted tax lawsand published guidance with respect to applicability to the Company’soperations. Deferred tax assets are believed to be fully realizable asmanagement expects future taxable income will be sufficient to recover theasset values and, as such, no related valuation allowance has been providedfor.

**ITEM3.**                QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

*InterestRates.  *The Company’s market risks relate primarily tochanges in interest rates. The Company’s amended and restated credit facilitiescarry floating interest rates that are tied to the Eurodollar rate and thePrime rate and therefore the consolidated financial statements are exposed tochanges in interest rates. A 1.0% interest rate increase would increaseinterest expenses by approximately $0.8 million annually. The Companyhistorically has not engaged in interest rate hedging activities.

*CurrencyExchange Rates.  *The Company historically has not beenexposed to currency exchange rate risks with respect to inventory purchases assuch expenditures have been and continue to be denominated in U.S. Dollars. TheCompany purchases some of its inventory from suppliers in China, for which itpays U.S. Dollars. In July 2005, China announced that it would increase thevalue of the Chinese Yuan and abandon its fixed exchange rate against the U.S.Dollar to now link to a basket of world-currencies. If the exchange rate of theChinese Yuan to the U.S. Dollar continues to increase, the Company mayexperience fluctuations in the cost of inventory purchased from China.

**ITEM 4.**                CONTROLS ANDPROCEDURES

(a)   *Disclosure Controls and Procedures.**  *TheCompany’s management, with the participation of the Company’s PrincipalExecutive Officer and Principal Financial Officer, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis 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.*   There have not beenany changes in the Company’s internal controls over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) underthe Securities Exchange Act of 1934, as amended) during the fiscal quarter towhich this report relates that have materially affected, or are reasonablylikely to materially affect, the Company’s internal controls over financialreporting.

19

----

**PART II.OTHER INFORMATION**

**ITEM 1.**                LEGALPROCEEDINGS

There have been nomaterial changes in the Company’s legal proceedings from what was reported inits Annual Report on Form 10K filed with the SEC on April 19, 2005.

**ITEM 2.**                UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 19, 2005, theCompany issued 350,000 shares of its common stock to Luciano Manganella, theprevious owner of JasmineSola, as part of the purchase price to acquire 100percent of the outstanding common stock of JasmineSola. These shares wereissued in reliance on an exemption from registration under Section 4(2) ofthe Securities Act of 1933.

**ITEM 3.**                DEFAULTSUPON SENIOR SECURITIES

None.

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

In accordance with the Company’s notice and proxystatement dated May 20, 2005, the Company held its Annual Meeting ofStockholders on June 24, 2005. Holders of 51,222,891 shares of theCompany’s common stock were present in person or by proxy, representingapproximately 95.8% of the Company’s 53,484,741 shares outstanding on therecord date. The matters set forth below were submitted to a vote of theCompany’s stockholders:

(a) Theelection of nine directors of the Company to hold office until the next AnnualMeeting of Stockholders or until their respective successors are duly electedand qualified. The following persons were elected as members of the Board ofDirectors:
| **Name of Nominee** | ** ** | ** ** | ** ** | **Votes  For** | ** ** | **Votes  Withheld** | ** ** |
|-------------------------------|------------|------------|------------|----------------|------------|---------------------|------------|
| Bodil M. Arlander             |       | 46,791,063 |       | 4,431,828      |       |
| Philip M.  Carpenter III      |       | 46,595,423 |       | 4,627,468      |       |
| Richard P.  Crystal           |       | 46,636,082 |       | 4,586,809      |       |
| M. Katherine  Dwyer           |       | 50,773,457 |       | 449,434        |       |
| David H. Edwab                |       | 50,110,311 |       | 1,112,580      |       |
| John D. Howard                |       | 46,781,260 |       | 4,441,631      |       |
| Richard L. Perkal             |       | 46,798,364 |       | 4,424,527      |       |
| Arthur E. Reiner              |       | 50,773,443 |       | 449,448        |       |
| Ronald W. Ristau              |       | 46,452,427 |       | 4,770,464      |       |

 

(b) Theproposal to ratify the selection of Ernst & Young LLP to serve as theCompany’s independent registered public accounting firm for the fiscal yearending January 28, 2006:

| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** |
|---------------|------------|-------------------|------------|-----------------|------------|
| 50,794,004    |       | 427,887           |       | 1,000           |       |

 

**ITEM 5.**                OTHERINFORMATION

None.

20

----

**ITEM 6.**                EXHIBITS

Thefollowing exhibits are filed with this report and made a part hereof:
| 10.1 |   | Stock Purchase Agreement, dated July 19, 2005,  between Lerner New York, Inc. and Luciano Manganella.                                                                                            |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2 |   | Registration Rights  Agreement, dated July 19, 2005, between New York &  Company, Inc. and Luciano Manganella.                                                                     |
| 10.3 |   | Third Amendment to the  Company’s Amended and Restated Loan and Security Agreement, dated July 19,  2005.                                                                                   |
| 10.4 |   | Guaranty, dated  July 19, 2005, by Jasmine Company, Inc. for the Obligations under  the Amended and Restated Loan and Security Agreement.                                                   |
| 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   |   | 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. |

 

21

----

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|        | NEW YORK &  COMPANY, INC. |
|--------|-----------------------------------------|
|   | /s/ RONALD W. RISTAU                    |
|   | By:                                     | Ronald W. Ristau |
|   | Its:                                    | *Chief Operating Officer and* |
|   | * *                                | *Chief Financial Officer* |
|   | * *                                | *(Principal Financial Officer)* |
|   | Dated:                                  | September 13, 2005 |
|        |                                         |  |  |

 

22

----