6. Income Taxes

        The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. In November 2008, the Internal Revenue Service ("IRS") began its examination of the Company's U.S. federal income tax return for the 2006 tax year. During the third and fourth quarters of fiscal year 2009, the IRS communicated its intention to audit the Company's 2007 and 2008 federal income tax returns, as well as the Company's previously settled 2005 federal income tax return as a result of the Company's refund claims carrying back the Company's net operating losses. In addition, the Company is subject to U.S. federal income tax examinations for the Company's 2009 tax year and each year thereafter and state and local income tax examinations for the 2006 tax year and each year thereafter.

        At January 30, 2010, the Company reported a total liability of $2.5 million for unrecognized tax benefits, including interest and penalties, all of which would impact the Company's effective tax rate if reversed. There were no material changes to the liability for unrecognized tax benefits during the three months ended May 1, 2010. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.

        The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense.

        The effective tax rate for the three months ended May 1, 2010 reflects a benefit of 45.3%, as compared to a benefit of 44.0% for the three months ended May 2, 2009. The change in the effective tax rate is primarily due to a tax benefit resulting from the reduction of reserves for uncertain tax positions for prior years.

7. Long-Term Debt and Credit Facilities

        The Company's credit facilities currently consist of a term loan, of which $12.0 million was outstanding at May 1, 2010, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012.

        As of May 1, 2010, the Company had availability under its revolving credit facility of $72.9 million, net of letters of credit outstanding of $6.7 million, as compared to availability of $73.2 million, net of letters of credit outstanding of $6.9 million, as of May 2, 2009.

        The revolving loans under the credit facilities bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.00% and 1.25% per year, depending upon the Company's financial performance, or the Prime rate. The Company pays the lenders under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of 0.625% per year and on standby letters of credit at a rate of between 1.00% and 1.25% per year, depending upon the Company's financial performance, plus a monthly fee on a proportion of the unused commitments under that facility at a rate of 0.20% per year. The term loan bears interest at a floating rate equal to the Eurodollar rate plus 2.50% per year. If any default were to exist under the revolving credit facility and for so long as such default were to continue, at the option of the agent or lenders, the monthly fee on outstanding standby letters of credit may increase to 3.25% per year,

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

May 1, 2010

(Unaudited)

7. Long-Term Debt and Credit Facilities (Continued)

interest on the revolving loans may increase to 3.25% per year above the Eurodollar rate for Eurodollar rate loans and 2.00% per year above the Prime rate for all Prime rate loans, and interest on the term loan may increase to the Eurodollar rate plus 4.50% per year.

        The Company's credit facilities contain certain covenants, including restrictions on the Company's ability to pay dividends on its common stock, incur additional indebtedness and to prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more debt for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes. The terms of the Company's credit facilities also subject it to a minimum fixed charge coverage ratio of 1.00 to 1.00, if the Company's borrowing availability under its revolving credit facility plus qualified cash falls below $30.0 million ($20.0 million during March and November). Should the Company fully repay its existing term loan, the Company will only be subject to the minimum fixed charge coverage ratio in the event that borrowing availability under its revolving credit facility falls below $12.5 million. In addition, the Company is required at all times to maintain minimum borrowing availability under its credit facility of $10.0 million. The Company is currently in compliance with the financial covenants referred to above.

        The lenders have been granted a pledge of the common stock of Lerner Holding and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facilities. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facilities, and such guarantees are joint and several.

8. Fair Value Measurements

        FASB ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820") establishes a common definition for fair value to be applied to US GAAP guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. ASC 820 establishes a three level fair value hierarchy that requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:

        The Company's financial instruments consist of cash and cash equivalents, short-term trade receivables, accounts payable and long-term debt. The carrying values on the balance sheet for cash and cash equivalents, short-term trade receivables, and accounts payable approximate their fair values due to the short-term maturities of such items. The carrying value on the balance sheet for the

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

May 1, 2010

(Unaudited)

8. Fair Value Measurements (Continued)

Company's long-term debt approximates its fair value due to the variable interest rate it carries, and as such it is classified within level 2 of the fair value hierarchy.

9. Share Repurchases

        On November 26, 2008, the Company announced that its board of directors had authorized the repurchase of up to 3,750,000 shares over a 12 month period. During fiscal year 2009, the Company repurchased 1,000,000 shares of its common stock at a cost of approximately $3.4 million.

        On November 18, 2009, the Company's board of directors authorized the extension of the share repurchase program for an additional 12 month period ending on November 23, 2010. Repurchases, if any, will be made from time to time in the manner the Company believes appropriate, through open market or private transactions, including through pre-established trading plans. During the three months ended May 1, 2010, the Company did not repurchase any shares of the Company's common stock under the Company's authorized share repurchase program.

10. New Accounting Pronouncements

        In May 2009, the FASB issued ASC Topic 855, "Subsequent Events" ("ASC 855"), which establishes general standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009 and is applied prospectively. The Company adopted the provisions of ASC 855 effective August 1, 2009, with no material impact on its financial position or results of operations. In February 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-09, "Subsequent Events" ("ASU 2010-09"), which amends certain provisions of ASC 855 by removing the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. ASU 2010-09 is effective upon its issuance in February 2010, and its provisions have been adopted by the Company by the removal of the date subsequent events were evaluated in the footnotes to the Company's consolidated financial statements. The adoption of ASU 2010-09 did not have any impact on the Company's financial position and results of operations.

        In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"), which amends ASC 820 by providing new disclosures and clarifying existing disclosures. ASU 2010-06 requires reporting entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, ASU 2010-06 requires the presentation of separate information regarding purchases, sales, issuances, and settlements for Level 3 fair value measurements. ASU 2010-06 also clarifies the existing disclosures about the level of disaggregation to require fair value measurement disclosures for each class of assets and liabilities and clarifies that a description of inputs and valuation techniques used to measure fair value is required for both recurring and nonrecurring fair value measurements classified as Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after

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New York & Company, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

May 1, 2010

(Unaudited)

10. New Accounting Pronouncements (Continued)

December 15, 2010, and for interim periods within those fiscal years. Except for the detailed Level 3 roll forward disclosures, the guidance in ASU 2010-06 was adopted by the Company on January 31, 2010 with no material impact on its financial position and results of operations. The Company does not anticipate that the adoption of the remaining provisions of ASU 2010-06 regarding detailed Level 3 roll forward disclosures will have a material impact on its financial position or results of operations.

11. Subsequent Events

        On May 20, 2010, the Company announced that during the second quarter of fiscal year 2010, it plans to exit an underperforming test accessories concept consisting of five stores. The Company believes exiting this concept will allow it to focus its resources on the growth opportunities in its E-commerce business and the newly launched New York & Company Outlet stores, as well as the core New York & Company stores. In connection with exiting the test accessories concept, the Company expects to record restructuring charges of approximately $2.0 million to $2.5 million during the second quarter of fiscal year 2010.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

        This Quarterly Report on Form 10-Q includes forward looking statements. Certain matters discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Quarterly Report on Form 10-Q are forward looking statements intended to qualify for safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Some of these statements can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "may," "plan," "project," "predict" and similar expressions and include references to assumptions that the Company believes are reasonable and relate to its future prospects, developments and business strategies. Factors that could cause the Company's actual results to differ materially from those expressed or implied in such forward looking statements, include, but are not limited to those discussed under the heading "Item 3. Quantitative and Qualitative Disclosures About Market Risk" in this Quarterly Report on Form 10-Q and:

•

the Company's business is impacted by general economic conditions and their effect on consumer confidence and spending patterns, which have deteriorated significantly and may continue to do so for the foreseeable future;



•

the current economic conditions could negatively impact the Company's merchandise vendors and their ability to deliver products, as well as the Company's retail landlords and their ability to maintain their shopping centers in a first-class condition and otherwise perform their obligations as a landlord;



•

the Company's ability to open and operate stores successfully, including its new New York & Company Outlet stores, and the potential lack of availability of suitable store locations on acceptable terms;



•

seasonal fluctuations in the Company's business;



•

fluctuations in comparable store sales and results of operations;



•

the Company's ability to anticipate and respond to fashion trends, develop new merchandise and launch new product lines successfully;



•

the Company's dependence on mall traffic for its sales;



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the Company's dependence on the success of its brand;



•

competition in the Company's market, including promotional and pricing competition;



•

the Company's reliance on the effective use of customer information;



•

the Company's ability to service any debt it incurs from time to time as well as its ability to maintain the requirements that the agreements related to such debt impose upon the Company;



•

the susceptibility of the Company's business to extreme and/or unseasonable weather conditions;



•

the Company's ability to retain, recruit and train key personnel;



•

the Company's reliance on third parties to manage some aspects of its business;



•

changes in the cost of raw materials, distribution services or labor, including federal and state minimum wage rates;

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•

the potential impact of national and international security concerns on the retail environment, including any possible military action, terrorist attacks or other hostilities;



•

the Company's reliance on foreign sources of production, including the disruption of imports by labor disputes, political instability, legal and regulatory matters, duties, taxes, other charges, local business practices, potential delays in shipping and related pricing impacts and political issues and fluctuation in currency and exchange rates;



•

the potential impact of natural disasters and health concerns relating to outbreaks of widespread diseases, particularly on manufacturing operations of the Company's vendors;



•

the ability of the Company's manufacturers to manufacture and deliver products in a timely manner while meeting its quality standards;



•

the Company's ability to successfully maintain its restructuring and cost reduction program;



•

the Company's ability to successfully integrate new or acquired businesses, including the Company's planned outlet expansion, into its existing business;



•

the Company's reliance on manufacturers to maintain ethical business practices;



•

the Company's ability to protect its trademarks and other intellectual property rights;



•

the Company's ability to maintain, and its reliance on, its information technology infrastructure;



•

the effects of government regulation;



•

the control of the Company by its sponsors and any potential change of ownership of those sponsors; and



•

risks and uncertainties as described in the Company's documents filed with the SEC, including its Annual Report on Form 10-K, as filed on April 6, 2010.

        The Company undertakes no obligation to revise the forward looking statements included in this Quarterly Report on Form 10-Q to reflect any future events or circumstances. The Company's actual results, performance or achievements could differ materially from the results expressed or implied by these forward looking statements.

Overview

        The Company is a leading specialty retailer of fashion-oriented, moderately-priced women's apparel. The Company designs and sources its proprietary branded New York & Company merchandise sold exclusively through its national network of retail stores and E-commerce store at www.nyandcompany.com. The target customers for the Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As of May 1, 2010, the Company operated 579 stores in 43 states.

        During fiscal year 2010, the Company is focusing on increasing sales and properly positioning itself to generate future profits. During the three months ended May 1, 2010, the Company opened six new stores, including five New York & Company Outlet stores, and completed the remodeling of one existing store. The Company remains on track to open 20 to 25 New York & Company Outlet stores during fiscal year 2010, and believes the long-term growth potential could be between 75 and 90 outlet stores. On May 20, 2010, the Company announced that during the second quarter of fiscal year 2010, it plans to exit an underperforming test accessories concept consisting of five stores. The Company believes exiting this concept will allow it to focus its resources on the growth opportunities in its E-commerce business and the newly launched New York & Company Outlet stores, as well as the core New York & Company stores. In connection with exiting the test accessories concept, the Company

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expects to record restructuring charges of approximately $2.0 million to $2.5 million during the second quarter of fiscal year 2010.

        Net sales for the three months ended May 1, 2010 increased by 1.8% to $237.0 million, as compared to $232.9 million for the three months ended May 2, 2009. Comparable store sales increased 2.9% for the three months ended May 1, 2010, as compared to a comparable store sales decrease of 15.0% for the three months ended May 2, 2009. While the Company experienced an improvement in sales trends across key apparel and accessories categories and an increase in E-commerce sales during the three months ended May 1, 2010, promotional activity during the quarter led to a decrease in merchandise margins as compared to first quarter last year. Loss from continuing operations for the three months ended May 1, 2010 was flat compared to the three months ended May 2, 2009 at $4.9 million, or $0.08 per diluted share. Included in the loss from continuing operations for the three months ended May 1, 2010 is a $0.01 per diluted share loss related to the test accessories concept, which the Company plans to exit during the second quarter of fiscal year 2010.

        Capital spending for the three months ended May 1, 2010 was $3.9 million, as compared to $2.7 million for the three months ended May 2, 2009. The $3.9 million of capital spending represents $3.2 million related to the construction of six new stores, including five New York & Company Outlet stores, and the remodeling of one existing store and $0.7 million related to non-store capital projects. Capital spending during the three months ended May 2, 2009 primarily represents non-store capital projects.

        The Company views the retail apparel market as having two principal selling seasons: spring (first and second quarter) and fall (third and fourth quarter). The Company's business experiences seasonal fluctuations in net sales and operating income, with a significant portion of its operating income typically realized during the fourth quarter. Seasonal fluctuations also affect inventory levels. The Company must carry a significant amount of inventory, especially before the holiday season selling period in the fourth quarter.

General

        Net Sales.    Net sales consist of sales from comparable and non-comparable stores and the Company's E-commerce store. A store is included in the comparable store sales calculation after it has completed 13 full fiscal months of operation from the store's original opening date or once it has been reopened after remodeling. Beginning in February 2008, sales from the Company's E-commerce store are included in comparable store sales. Non-comparable store sales include stores which have not completed 13 full fiscal months of operations, sales from closed stores, and sales from stores closed or in temporary locations during periods of remodeling. In addition, in a year with 53 weeks, sales in the last week of the year are not included in determining comparable store sales. Net sales from the sale of merchandise at the Company's stores are recognized when the customer takes possession of the merchandise and the purchases are paid for, primarily with either cash or credit card. Net sales from the sale of merchandise at the Company's E-commerce store are recognized when the merchandise is shipped to the customer. A reserve is provided for projected merchandise returns based on prior experience.

        The Company issues gift cards which do not contain provisions for expiration or inactivity fees. The portion of the dollar value of gift cards that ultimately is not used by customers to make purchases is known as breakage. The Company estimates gift card breakage and records such amount as revenue as gift cards are redeemed. The Company's estimate of gift card breakage is based on analysis of historical redemption patterns, as well as the remaining balance of gift cards for which the Company believes the likelihood of redemption to be remote.

        Cost of Goods Sold, Buying and Occupancy Costs.    Cost of goods sold, buying and occupancy costs is comprised of direct inventory costs for merchandise sold, distribution, payroll and related costs for

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design, sourcing, production, merchandising, planning and allocation personnel, and store occupancy and related costs.

        Gross Profit.    Gross profit represents net sales less cost of goods sold, buying and occupancy costs.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses include selling, store management and corporate expenses, including payroll and employee benefits, employment taxes, management information systems, marketing, insurance, legal, store pre-opening and other corporate level expenses. Store pre-opening expenses include store level payroll, grand opening event marketing, travel, supplies and other store opening expenses.

Results of Operations

        The following tables summarize the Company's results of operations as a percentage of net sales and selected store operating data for the three months ended May 1, 2010 and May 2, 2009:

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Three Months Ended May 1, 2010 Compared to Three Months Ended May 2, 2009

        Net Sales.    Net sales for the three months ended May 1, 2010 increased 1.8% to $237.0 million, as compared to $232.9 million for the three months ended May 2, 2009. The increase in net sales is primarily driven by a 2.9% increase in comparable store sales for the three months ended May 1, 2010, as compared to a decrease of 15.0% for the three months ended May 2, 2009. The increase in comparable store sales was partially offset by the impact of stores closed during fiscal year 2009 in connection with the Company's restructuring and cost reduction program. In the comparable store base, average dollar sales per transaction decreased by 4.3%, while the number of transactions per average store increased by 7.6%, as compared to the same period last year.

        Gross Profit.    Gross profit decreased $0.3 million to $58.5 million, or 24.7% of net sales, for the three months ended May 1, 2010, as compared to $58.9 million, or 25.3% of net sales, for the three months ended May 2, 2009. The decrease in gross profit as a percentage of net sales during the three months ended May 1, 2010 is due to a 250 basis point decrease in merchandise margins resulting from increased levels of promotional activity, partially offset by a 190 basis point decrease in buying and occupancy costs, primarily attributable to the increase in comparable store sales combined with savings recognized from the Company's restructuring and cost reduction program.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses were $67.2 million, or 28.4% of net sales, for the three months ended May 1, 2010, as compared to $67.4 million, or 29.0% of net sales, for the three months ended May 2, 2009. The decrease in selling, general and administrative expenses as a percentage of net sales is primarily a result of the increase in comparable store sales.

        Operating Loss.    For the reasons discussed above, operating loss for the three months ended May 1, 2010 was $8.7 million, or 3.7% of net sales, as compared to an operating loss of $8.5 million, or 3.7% of net sales, for the three months ended May 2, 2009.

        Interest Expense, Net.    Net interest expense was flat for the three months ended May 1, 2010 as compared to the three months ended May 2, 2009 at $0.2 million.

        Benefit for Income Taxes.    The effective tax rate for the three months ended May 1, 2010 reflects a benefit of 45.3%, as compared to a benefit of 44.0% for the three months ended May 2, 2009. The change in the effective tax rate is primarily due to a tax benefit resulting from the reduction of reserves for uncertain tax positions for prior years.

        Loss from Continuing Operations.    For the reasons discussed above, loss from continuing operations for the three months ended May 1, 2010 was flat as compared to the three months ended May 2, 2009 at $4.9 million, or 2.1% of net sales.

        Income from Discontinued Operations, Net of Taxes.    Income from discontinued operations, net of taxes, represents the Company's discontinued JasmineSola business.

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Non-GAAP Financial Measure

        The Company has provided a non-GAAP financial measure to adjust loss from continuing operations for the three months ended May 1, 2010 and May 2, 2009. This information reflects, on a non-GAAP adjusted basis, the Company's loss from continuing operations before interest expense, net; benefit for income taxes; and depreciation and amortization ("EBITDA"). The calculation for EBITDA is provided to enhance the user's understanding of the Company's operating results. EBITDA is provided because management believes it is an important measure of financial performance commonly used to determine the value of companies and to define standards for borrowing from institutional lenders. The non-GAAP financial information should be considered in addition to, not as an alternative to, loss from continuing operations, as an indicator of the Company's operating performance, and cash flows from operating activities of continuing operations, as a measure of the Company's liquidity, as determined in accordance with accounting principles generally accepted in the United States. The Company may calculate EBITDA differently than other companies.

Reconciliation of Loss from Continuing Operations to EBITDA

Liquidity and Capital Resources

        The Company's primary uses of cash are to fund working capital, operating expenses, debt service and capital expenditures related primarily to the construction of new stores, remodeling of existing stores and development of the Company's information technology infrastructure. Historically, the Company has financed these requirements from internally generated cash flow. The Company intends to fund its ongoing capital and working capital requirements, as well as debt service obligations, primarily through cash flows from operations, supplemented by borrowings under its credit facilities, if needed. The Company is in compliance with all debt covenants as of May 1, 2010.

        The following tables contain information regarding the Company's liquidity and capital resources:

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Operating Activities of Continuing Operations

        Net cash used in operating activities of continuing operations was $58.9 million for the three months ended May 1, 2010, as compared to net cash used in operating activities of continuing operations of $18.5 million for the three months ended May 2, 2009. The increase in net cash used in operating activities for the three months ended May 1, 2010, as compared to the three months ended May 2, 2009, is primarily related to changes in accounts receivable, income taxes receivable, inventory, accounts payable and income taxes payable, partially offset by a change in prepaid expenses.

Investing Activities of Continuing Operations

        Net cash used in investing activities of continuing operations was $3.9 million for the three months ended May 1, 2010, as compared to $2.7 million of net cash used in investing activities of continuing operations for the three months ended May 2, 2009. Net cash used in investing activities during the three months ended May 1, 2010 reflects capital expenditures of $3.2 million related to the construction of six new stores, including five New York & Company Outlet stores, and the remodeling of one existing store and $0.7 million related to non-store capital projects. Net cash used in investing activities during the three months ended May 2, 2009 primarily represents capital expenditures for non-store capital projects.

        As previously announced, the Company plans to open approximately 20 to 25 New York & Company Outlet stores during fiscal year 2010. The Company's future capital requirements will depend primarily on the number of new stores it opens, the number of existing stores it remodels and the timing of these expenditures.

Financing Activities of Continuing Operations

        Net cash used in financing activities of continuing operations was $1.3 million for the three months ended May 1, 2010, as compared to $2.0 million of net cash used in financing activities of continuing operations for the three months ended May 2, 2009. Net cash used in financing activities for the three months ended May 1, 2010 consists of a $1.5 million quarterly payment against the Company's outstanding term loan and $0.2 million of proceeds from the exercise of stock options and the related tax benefit to the Company. Net cash used in financing activities for the three months ended May 2, 2009 primarily consists of a $1.5 million quarterly payment against the Company's outstanding term loan and $0.5 million used for the repurchase of 142,400 shares of the Company's common stock under its authorized share repurchase program.

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Discontinued Operations Cash Flows

        There were no material payments or receipts during the three months ended May 1, 2010 and May 2, 2009 that related to the discontinued operations of JasmineSola.

Long-Term Debt and Credit Facilities

        The Company's credit facilities currently consist of a term loan, of which $12.0 million was outstanding at May 1, 2010, and a $90.0 million revolving credit facility (which includes a sub-facility available for issuance of letters of credit of up to $75.0 million), both having a maturity date of March 17, 2012.

        As of May 1, 2010, the Company had availability under its revolving credit facility of $72.9 million, net of letters of credit outstanding of $6.7 million, as compared to availability of $73.2 million, net of letters of credit outstanding of $6.9 million, as of May 2, 2009.

        The revolving loans under the credit facilities bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.00% and 1.25% per year, depending upon the Company's financial performance, or the Prime rate. The Company pays the lenders under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of 0.625% per year and on standby letters of credit at a rate of between 1.00% and 1.25% per year, depending upon the Company's financial performance, plus a monthly fee on a proportion of the unused commitments under that facility at a rate of 0.20% per year. The term loan bears interest at a floating rate equal to the Eurodollar rate plus 2.50% per year. If any default were to exist under the revolving credit facility and for so long as such default were to continue, at the option of the agent or lenders, the monthly fee on outstanding standby letters of credit may increase to 3.25% per year, interest on the revolving loans may increase to 3.25% per year above the Eurodollar rate for Eurodollar rate loans and 2.00% per year above the Prime rate for all Prime rate loans, and interest on the term loan may increase to the Eurodollar rate plus 4.50% per year.

        The Company's credit facilities contain certain covenants, including restrictions on the Company's ability to pay dividends on its common stock, incur additional indebtedness and to prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more debt for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes. The terms of the Company's credit facilities also subject it to a minimum fixed charge coverage ratio of 1.00 to 1.00, if the Company's borrowing availability under its revolving credit facility plus qualified cash falls below $30.0 million ($20.0 million during March and November). Should the Company fully repay its existing term loan, the Company will only be subject to the minimum fixed charge coverage ratio in the event that borrowing availability under its revolving credit facility falls below $12.5 million. In addition, the Company is required at all times to maintain minimum borrowing availability under its credit facility of $10.0 million. The Company is currently in compliance with the financial covenants referred to above.

        The lenders have been granted a pledge of the common stock of Lerner Holding and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facilities. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facilities, and such guarantees are joint and several.

Critical Accounting Policies

        Management has determined that our most critical accounting policies are those related to inventory valuation, impairment of long-lived assets, goodwill and other intangible assets, and income taxes. We continue to monitor our accounting policies to ensure proper application of current rules and

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regulations. There have been no significant changes to these policies as discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.

Adoption of New Accounting Standards

        In May 2009, the FASB issued ASC Topic 855, "Subsequent Events" ("ASC 855"), which establishes general standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009 and is applied prospectively. The Company adopted the provisions of ASC 855 effective August 1, 2009, with no material impact on its financial position or results of operations. In February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events" ("ASU 2010-09"), which amends certain provisions of ASC 855 by removing the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. ASU 2010-09 is effective upon its issuance in February 2010, and its provisions have been adopted by the Company by the removal of the date subsequent events were evaluated in the footnotes to the Company's consolidated financial statements. The adoption of ASU 2010-09 did not have any impact on the Company's financial position and results of operations.

        In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"), which amends ASC 820 by providing new disclosures and clarifying existing disclosures. ASU 2010-06 requires reporting entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, ASU 2010-06 requires the presentation of separate information regarding purchases, sales, issuances, and settlements for Level 3 fair value measurements. ASU 2010-06 also clarifies the existing disclosures about the level of disaggregation to require fair value measurement disclosures for each class of assets and liabilities and clarifies that a description of inputs and valuation techniques used to measure fair value is required for both recurring and nonrecurring fair value measurements classified as Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Except for the detailed Level 3 roll forward disclosures, the guidance in ASU 2010-06 was adopted by the Company on January 31, 2010 with no material impact on its financial position and results of operations. The Company does not anticipate that the adoption of the remaining provisions of ASU 2010-06 regarding detailed Level 3 roll forward disclosures will have a material impact on its financial position or results of operations.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Interest Rates.    The Company's market risks relate primarily to changes in interest rates. The Company's credit facilities carry floating interest rates that are tied to the Eurodollar rate and the Prime rate and therefore, the consolidated statements of operations and the consolidated statements of cash flows will be exposed to changes in interest rates. A 1.0% interest rate increase would increase interest expenses by approximately $0.1 million annually. The Company historically has not engaged in interest rate hedging activities.

        Currency Exchange Rates.    The Company historically has not been exposed to currency exchange rate risks with respect to inventory purchases as such expenditures have been, and continue to be, denominated in U.S. Dollars. The Company purchases some of its inventory from suppliers in China, for which the Company pays U.S. Dollars. Since July 2005, China has been slowly increasing the value of the Chinese Yuan, which is now linked to a basket of world currencies. If the exchange rate of the Chinese Yuan to the U.S. Dollar continues to increase, the Company may experience fluctuations in the cost of inventory purchased from China and the Company would adjust its supply chain accordingly.

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ITEM 4.    CONTROLS AND PROCEDURES

        (a)    Evaluation of disclosure controls and procedures.    The Company carried out an evaluation, as of May 1, 2010, under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that all information required to be filed in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission's rules and forms (ii) and that the disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Principal Executive and Principal Financial Officers, as appropriate to allow timely decisions regarding required disclosure.

        (b)    Changes in internal control over financial reporting.    There has been no change in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during the Company's last fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II.
OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        There have been no material changes in the Company's legal proceedings from what was reported in its Annual Report on Form 10-K filed with the SEC on April 6, 2010.

ITEM 1A.    RISK FACTORS

        There have been no material changes in the Company's risk factors from what was reported in its Annual Report on Form 10-K filed with the SEC on April 6, 2010.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

        As indicated in the table below, the Company did not make any purchases of the Company's common stock during the three months ended May 1, 2010.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4.    REMOVED AND RESERVED

ITEM 5.    OTHER INFORMATION

        None.

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ITEM 6.    EXHIBITS

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

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SIGNATURES

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

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