**UNITED STATES********SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**ý****        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**FOR THE QUARTERLY PERIOD ENDEDJune 30, 2005**

 

**OR**

 

**o****        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**FOR THE TRANSITION PERIODFROM           TO           **

 

**Commission file****number 0-19658**

 

**TUESDAY MORNING CORPORATION**

(Exact Name of Registrant as Specified in itsCharter)

 
| **Delaware**                                                     | ** ** | **75-2398532**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |

 

**6250 LBJFreewayDallas, Texas 75240**

(Address, including zipcode, of principal executive offices)

 

**(972) 387-3562**

(Registrant’s telephonenumber, including area code)

 

**Not applicable**

(Former name, formeraddress and former fiscal year, if changed since last report)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes  ý  No  o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes  ý  No  o

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

 
| **Class**                                | ** ** | **Outstanding  at July 25, 2005** |
|------------------------------------------|------------|----------------------------------------|
| Common Stock, par value  $0.01 per share |       | 41,323,417                             |

 

 

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**Forward-Looking Statements**

 

*This Quarterly Report on Form 10-Q containsforward-looking statements within the meaning of the federal securities lawsand the Private Securities Litigation Reform Act of 1995.  These statements may be found throughout thisForm 10-Q particularly under the heading “Management’s Discussion and Analysisof Financial Condition and Results of Operations,” among others.  Forward-looking statements typically areidentified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,”“believe,” “estimate,” “intend” and similar words, although someforward-looking statements are expressed differently.  You should consider statements that containthese words carefully because they describe our expectations, plans, strategiesand goals and our beliefs concerning future business conditions, our futureresults of operations, our future financial position, and our business outlookor state other “forward-looking” information.*

 

*Readers are referred to the caption “RiskFactors” appearing at the end of Item I of the Company’s Annual Report on Form10-K for the year ended December 31, 2004 for**examples of risks, uncertainties and events that could cause ouractual results to differ materially from the expectations expressed in ourforward-looking statements.  These risks,uncertainties and events also include, but are not limited to, the following:*

 

•                  *uncertainties regarding our ability to open stores in new and existingmarkets and operate these stores on a profitable basis;*

 

•                  *conditions**affectingconsumer spending, such as high gasoline prices;*

 

•                  *general**regionaland national economic conditions;*

 

•                  *inclement**weather,such as the pattern of hurricanes that affected the Southeast U.S. in Augustand September 2004;*

 

•                  *changes**in ourmerchandise mix;*

 

•                  *timing**and type ofsales events, promotional activities and other advertising;*

 

•                  *uncertainties**arising outof world events;*

 

•                  *increased**or newcompetition;*

 

•                  *our**ability tocontinuously attract buying opportunities for closeout merchandise andanticipate consumer demand as closeout merchandise becomes available;*

 

•                  *loss**of, ordisruption in, our centralized distribution center;*

 

•                  *loss**ordeparture of one or more members of our senior management;*

 

•                  *our**dependenceon external funding sources;*

 

•                  *an**increase inthe cost or a disruption in the flow our products;*

 

•                  *environmental**regulations;*

 

•                  *seasonal**andquarterly fluctuations; and*

 

•                  *fluctuations**in our comparablestore results.*

 

*Weundertake no obligation to update our forward-looking statements to reflectevents and circumstances after the date on which the statements were made or toreflect the occurrence of unanticipated events.*

 

*Theterms “Tuesday Morning,” “we,” “us” and “our” as used in this Quarterly Reporton Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries.*

 

2

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| **PART I - FINANCIAL INFORMATION**                                                                         |       |
|------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                       |       |
| Item 1 –  Financial Statements                                                                        |       |
|                                                                                                       |       |
| Consolidated Balance Sheets as of  June 30, 2005 and December 31, 2004                           |       |
|                                                                                                       |       |
| Consolidated Statements of Income for the  Three Months and Six Months Ended June 30, 2005 and 2004   |       |
|                                                                                                       |       |
| Consolidated Statements of Cash Flows for  the Six Months Ended June 30, 2005 and 2004                |       |
|                                                                                                       |       |
| Notes to Consolidated Financial Statements                                                                 |       |
|                                                                                                       |       |
| Item 2 –  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |       |
|                                                                                                       |       |
| Item 3  – Quantitative and Qualitative Disclosures About Market Risk                                  |       |
|                                                                                                       |       |
| Item 4 –  Controls and Procedures                                                                     |       |
| ** **                                                                                                 | ** ** |
| **PART II – OTHER  INFORMATION**                                                                      | ** ** |
| ** **                                                                                                 | ** ** |
| Item 1 – Legal Proceedings                                                                            |       |
|                                                                                                       |       |
| Item  4 – Submission of Matters to a Vote of Security Holders                                         |       |
|                                                                                                       |       |
| Item 5 – Other Information                                                                            |       |
|                                                                                                       |       |
| Item 6 – Exhibits                                                                                     |       |

 

3

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## ***PART I***– FINANCIAL INFORMATION

 

**Item 1****.****Financial Statements**

 

**Tuesday Morning CorporationConsolidated Balance Sheets(In thousands, except for share data)**

 
| ** **                                                                                                                                                                              | ** ** | **June 30,  2005** | ** ** | **Dec. 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                              | ** ** | ** **              | ** ** | ** **         | ** ** |
| **ASSETS**                                                                                                                                                                              |       |                    |       |               |       |
| Current assets:                                                                                                                                                                         |       |                    |       |               |       |
| Cash and cash equivalents                                                                                                                                                               |       | $                       | 5,486      |               | $          | 45,067 |   |
| Inventories                                                                                                                                                                             |       | 207,742                 |       | 189,132            |       |
| Prepaid expenses and other current assets                                                                                                                                               |       | 5,932                   |       | 5,169              |       |
| Deferred income taxes                                                                                                                                                                   |       | 5,991                   |       | 5,991              |       |
| Total current assets                                                                                                                                                                    |       | 225,151                 |       | 245,359            |       |
|                                                                                                                                                                                    |       |                    |       |               |       |
| Property and equipment, net                                                                                                                                                             |       | 87,940                  |       | 86,332             |       |
| Deferred financing costs                                                                                                                                                                |       | 770                     |       | 877                |       |
| Other assets                                                                                                                                                                            |       | 3,948                   |       | 3,552              |       |
|                                                                                                                                                                                    |       |                    |       |               |       |
| Total Assets                                                                                                                                                                            |       | $                       | 317,809    |               | $          | 336,120 |   |
|                                                                                                                                                                                    |       |                    |       |               |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                          |       |                    |       |               |       |
| Current liabilities:                                                                                                                                                                    |       |                    |       |               |       |
| Accounts payable                                                                                                                                                                        |       | $                       | 69,419     |               | $          | 72,722 |   |
| Accrued liabilities                                                                                                                                                                     |       | 33,361                  |       | 39,549             |       |
| Income taxes payable                                                                                                                                                                    |       | 8,583                   |       | 17,483             |       |
| Total current liabilities                                                                                                                                                               |       | 111,363                 |       | 129,754            |       |
|                                                                                                                                                                                    |       |                    |       |               |       |
| Revolving credit facility                                                                                                                                                               |       | 3,500                   |       | —             |       |
| Deferred rent                                                                                                                                                                           |       | 4,304                   |       | 165                |       |
| Deferred income taxes                                                                                                                                                                   |       | 9,051                   |       | 9,051              |       |
|                                                                                                                                                                                    |       |                    |       |               |       |
| Total Liabilities                                                                                                                                                                       |       | 128,218                 |       | 138,970            |       |
|                                                                                                                                                                                    |       |                    |       |               |       |
| Commitments and contingencies                                                                                                                                                           |       |                    |       |               |       |
| Stockholders’ equity:                                                                                                                                                              |       |                    |       |               |       |
| Preferred stock, par value $.01 per share,  authorized 10,000,000 shares, none issued or outstanding                                                                                    |       | —                  |       | —             |       |
| Common stock, par value $.01 per share,  authorized 100,000,000 shares; 41,323,417 shares issued and outstanding at  June 30, 2005 and 41,101,965 shares at December 31, 2004 |       | 413                     |       | 411                |       |
| Additional paid-in capital                                                                                                                                                              |       | 189,245                 |       | 188,969            |       |
| Retained earnings                                                                                                                                                                       |       | —                  |       | 7,745              |       |
| Accumulated other comprehensive income  (loss)                                                                                                                                          |       | (67                     | )          | 25                 |       |
|                                                                                                                                                                                    |       |                    |       |               |       |
| Total Stockholders’ Equity                                                                                                                                                         |       | 189,591                 |       | 197,150            |       |
|                                                                                                                                                                                    |       |                    |       |               |       |
| Total Liabilities and Stockholders’ Equity                                                                                                                                         |       | $                       | 317,809    |               | $          | 336,120 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

4

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**Tuesday Morning CorporationConsolidated Statements of Income(In thousands, except per share data)**

 
| ** **                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                    | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                          |       |                                 |       |                               |       |   |   |   |   |
| Net sales                                     |       | $                                    | 218,756    |                               | $          | 210,697 |   | $ | 404,350 |   | $ | 379,294 |   |
| Cost of sales                                 |       | 137,338                              |       | 134,307                            |       | 250,374 |   | 236,892 |   |
| Gross profit                                  |       | 81,418                               |       | 76,390                             |       | 153,976 |   | 142,402 |   |
| Selling, general and administrative  expenses |       | 64,672                               |       | 59,837                             |       | 126,794 |   | 112,368 |   |
| Operating income                              |       | 16,746                               |       | 16,553                             |       | 27,182 |   | 30,034 |   |
| Other income (expense):                       |       |                                 |       |                               |       |   |   |   |   |
| Interest income                               |       | 64                                   |       | 3                                  |       | 98 |   | 7 |   |
| Interest expense                              |       | (164                                 | )          | (472                               | )          | (370 | ) | (883 | ) |
| Other income                                  |       | 239                                  |       | 206                                |       | 432 |   | 447 |   |
|                                          |       | 139                                  |       | (263                               | )          | 160 |   | (429 | ) |
| Income before income taxes                    |       | 16,885                               |       | 16,290                             |       | 27,342 |   | 29,605 |   |
| Income tax expense                            |       | 6,355                                |       | 6,281                              |       | 10,146 |   | 11,407 |   |
|                                          |       |                                 |       |                               |       |   |   |   |   |
| Net income                                    |       | $                                    | 10,530     |                               | $          | 10,009 |   | $ | 17,196 |   | $ | 18,198 |   |
|                                          |       |                                 |       |                               |       |   |   |   |   |
| **Earnings  Per Share**                       |       |                                 |       |                               |       |   |   |   |   |
| Net income per common share:                  |       |                                 |       |                               |       |   |   |   |   |
| Basic                                         |       | $                                    | 0.26       |                               | $          | 0.24 |   | $ | 0.42 |   | $ | 0.44 |   |
| Diluted                                       |       | $                                    | 0.25       |                               | $          | 0.24 |   | $ | 0.41 |   | $ | 0.44 |   |
| Weighted average number of common shares:     |       |                                 |       |                               |       |   |   |   |   |
| Basic                                         |       | 41,204                               |       | 41,047                             |       | 41,167 |   | 41,013 |   |
| Diluted                                       |       | 41,743                               |       | 41,716                             |       | 41,714 |   | 41,764 |   |
|                                          |       |                                 |       |                               |       |   |   |   |   |
| Dividends per common share                    |       | $                                    | 0.65       |                               | —     |   | $ | 0.65 |   | — |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

5

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**Tuesday Morning CorporationConsolidated Statements of Cash Flows(In thousands)**

 
| ** **                                                                        | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                            | ** ** | **2004** | ** ** |
|                                                                              |       |                                |       |   |   |
| **Net cash  flows from operating activities:**                                    |       |                                |       |   |   |
| Net income                                                                        |       | $                                   | 17,196     |   | $ | 18,198 |   |
| Adjustments to reconcile net income to net  cash used in operating activities:    |       |                                |       |   |   |
| Depreciation and amortization                                                     |       | 6,978                               |       | 5,429 |   |
| Amortization of financing fees                                                    |       | 86                                  |       | 202 |   |
| Other non-cash items                                                              |       | (62                                 | )          | 43 |   |
| Change in operating assets and liabilities:                                       |       |                                |       |   |   |
| Inventories                                                                       |       | (18,610                             | )          | (61,579 | ) |
| Prepaid and other assets                                                          |       | (1,138                              | )          | (966 | ) |
| Accounts payable                                                                  |       | (3,303                              | )          | 894 |   |
| Accrued liabilities                                                               |       | (6,188                              | )          | (2,873 | ) |
| Deferred rent                                                                     |       | 4,139                               |       | — |   |
| Income taxes payable                                                              |       | (8,900                              | )          | (7,833 | ) |
| Net cash used in operating activities                                             |       | (9,802                              | )          | (48,485 | ) |
|                                                                              |       |                                |       |   |   |
| **Net cash  flows from investing activities:**                                    |       |                                |       |   |   |
| Capital expenditures                                                              |       | (8,586                              | )          | (11,858 | ) |
| Net cash used in investing activities                                             |       | (8,586                              | )          | (11,858 | ) |
|                                                                              |       |                                |       |   |   |
| **Net cash  flows from financing activities:**                                    |       |                                |       |   |   |
| Payment of dividends to common stockholders                                       |       | (26,854                             | )          | — |   |
| Proceeds from revolving credit facility,  net                                     |       | 3,500                               |       | 44,500 |   |
| Payment of financing fees                                                         |       | —                              |       | (337 | ) |
| Proceeds from exercise of common stock  options and stock purchase plan purchases |       | 2,161                               |       | 390 |   |
| Net cash (used in) provided by financing  activities                              |       | (21,193                             | )          | 44,553 |   |
| Net decrease in cash and cash equivalents                                         |       | (39,581                             | )          | (15,790 | ) |
| Cash and cash equivalents, beginning of  period                                   |       | 45,067                              |       | 23,536 |   |
| Cash and cash equivalents, end of period                                          |       | $                                   | 5,486      |   | $ | 7,746 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

6

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**Tuesday Morning CorporationNotes to Consolidated Financial Statements**

 

1.               Basis of presentation - The consolidatedinterim financial statements included herein have beenprepared by us pursuant to the rules and regulations of the Securities andExchange Commission.  Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Stateshave been condensed or omitted pursuant to such rules and regulations.  These financial statements include alladjustments, consisting only of those of a normal recurring nature, which, inthe opinion of management, are necessary to present fairly the results of theinterim periods presented and should be read in conjunction with theconsolidated financial statements and notes thereto in our Form 10-K filing forthe year ended December 31, 2004. Because of the seasonal nature of our business, the results ofoperations for the quarter are not indicative of the results to be expected forthe entire year.

 

2*.**              *Lease accounting adjustment - Based oncertain views expressed in a letter of February 7, 2005 from the Office ofthe Chief Accountant of the Securities and Exchange Commission to the AmericanInstitute of Certified Public Accountants, we reviewed our accounting policiesand practices associated with operating leases. Consistent with industrypractices, we historically reported straight-line rental expense beginning onthe lease commencement date. This had the effect of excluding the rent holidayassociated with the pre-opening or build-out period of our stores from thecalculation of the period over which we expensed rent. Following our review, wemodified our accounting policies such that we begin recording rent expense onthe date we take possession of or have the right to use the premises.

 

As a result of this adjustment, we recorded a non-cash,$3.9 million ($2.4 million, net of income tax or $0.06 per dilutedshare) cumulative charge to earnings during the first quarter of fiscal 2005.The adjustment did not impact historical or future net cash flows nor the timing of the payments under related leases. Webelieve that the new lease accounting policies will not have a material effecton future diluted earnings per share. Prior years’ financial statements werenot restated as the impact of this issue was immaterial to previously reportedresults for any individual previous period.

 

3.               Comprehensive income - Comprehensive income is defined as net incomeplus the change in equity during a period from transactions and other events,excluding those resulting from investments by and distributions toshareholders. Total comprehensive income for the three month period endedJune 30, 2005 and 2004 was $10.5 million and $10.0 million, respectivelyand for the six month period ended June 30, 2005 and 2004 was $17.1million and $18.1 million, respectively.

 

4.               Legal proceedings – During 2001 and 2002, wewere named as a defendant in three complaints filed in the Superior Court ofCalifornia in and for the County of Los Angeles. The plaintiffs are seeking tocertify a statewide class made up of some of our currentand former employees, which they claim are owed compensation for overtimewages, penalties and interest. The plaintiffs are also seeking attorney’s feesand costs. In October 2003, we entered into a settlement agreement with asub-class of these plaintiffs consisting of manager-in-training and managementtrainees.  The settlement agreement iscurrently under appeal by one of the plaintiffs.

 

InDecember 2003, we were named as a defendant in a new lawsuit filed in theSuperior Court of California, in and for the County of San Diego.  The plaintiffs are alleging failure to payfor minimum reporting time, travel time, split-shift premiums, meal periods andother labor issues.  We entered into asettlement agreement on July 7, 2005 with the plaintiffs.  There was no material impact to our financialstatements related to this settlement. 

 

In June 2004, wewere named as a defendant in a complaint filed in the U.S. District Court,Central District of California. The plaintiff, Thomas Kinkade Company (f/k/a/Media Arts Group Inc.), is alleging copyright infringement and falseadvertisements on merchandise we sold in the second quarter of 2004. Thislawsuit is in the discovery phase.

 

Weintend to vigorously defend all pending actions. We do not believe these or anyother legal proceedings pending or threatened against us would have a materialadverse effect on our financial condition or results of operations.

 

7

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5.               Earnings per common share

 
| ** **                                                                                         | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| **(in thousands, except per share  data)**                                                         | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                               |       |                                 |       |                               |       |   |   |   |   |
| **Basic  earnings per share:**                                                                     |       |                                 |       |                               |       |   |   |   |   |
| Net income                                                                                         |       | $                                    | 10,530     |                               | $          | 10,009 |   | $ | 17,196 |   | $ | 18,198 |   |
| Weighted average number of common shares  outstanding                                              |       | 41,204                               |       | 41,047                             |       | 41,167 |   | 41,013 |   |
| Net income per common share                                                                        |       | $                                    | 0.26       |                               | $          | 0.24 |   | $ | 0.42 |   | $ | 0.44 |   |
|                                                                                               |       |                                 |       |                               |       |   |   |   |   |
| **Diluted  earnings per share:**                                                                   |       |                                 |       |                               |       |   |   |   |   |
| Net income                                                                                         |       | $                                    | 10,530     |                               | $          | 10,009 |   | $ | 17,196 |   | $ | 18,198 |   |
|                                                                                               |       |                                 |       |                               |       |   |   |   |   |
| Dilutive effect of employee stock options                                                          |       | 539                                  |       | 669                                |       | 547 |   | 751 |   |
| Weighted average number of common shares  outstanding                                              |       | 41,204                               |       | 41,047                             |       | 41,167 |   | 41,013 |   |
| Weighted average number of common shares  and diluted effect of outstanding employee stock options |       | 41,743                               |       | 41,716                             |       | 41,714 |   | 41,764 |   |
|                                                                                               |       |                                 |       |                               |       |   |   |   |   |
| Net income per common share                                                                        |       | $                                    | 0.25       |                               | $          | 0.24 |   | $ | 0.41 |   | $ | 0.44 |   |

 

6.               Revolving credit facility – Our $210 millionrevolving credit facility expires in December 2009.  We incur commitment fees of up to 0.25% onthe unused portion of the revolving credit facility. Any borrowings under therevolving credit facility incur interest at LIBOR or the prime rate, dependingon the type of borrowing, plus an applicable margin. These rates are increasedor reduced as our average total leverage ratio changes.

 

AtJune 30, 2005, we had $3.5 million outstanding under the revolving creditfacility and had availability of $196.8 million.

 

7.               Stock-based compensation – We account for ourstock-based compensation plans utilizing the intrinsic value method inaccordance with the provisions of Accounting Principles Board Opinion No. 25(APB 25).  Generally, no compensationexpense is recognized for fixed option plans because the exercise prices ofemployee stock options equal or exceed the market prices of the underlyingstock on the dates of grant.

 

Thefollowing table represents the effect on net income and earnings per share ifwe had applied the fair value based method and recognition provisions ofStatement of Financial Accounting Standards (SFAS) No. 123, “Accounting forStock-Based Compensation,” and our adoption on January 1, 2003 ofStatement of Financial Accounting Standards No. 148, “Accounting forStock-Based Compensation Transition and Disclosure.”  The pro forma effects of stock-basedcompensation on net income and net income per common share are as follows:

 
| ** **                                                                                                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| **(in thousands, except per share  data)**                                                                          | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income as reported                                                                                              |       | $                                    | 10,530     |                               | $          | 10,009 |   | $ | 17,196 |   | $ | 18,198 |   |
| Less: Stock-based employee compensation  expense determined under the fair value method, net of related tax effects |       | 956                                  |       | 839                                |       | 1,956 |   | 1,658 |   |
| Pro-forma net income                                                                                                |       | $                                    | 9,574      |                               | $          | 9,170 |   | $ | 15,240 |   | $ | 16,540 |   |
|                                                                                                                |       |                                 |       |                               |       |   |   |   |   |
| Net income per common share:                                                                                        |       |                                 |       |                               |       |   |   |   |   |
| Basic as reported                                                                                                   |       | $                                    | 0.26       |                               | $          | 0.24 |   | $ | 0.42 |   | $ | 0.44 |   |
| Basic pro-forma                                                                                                     |       | $                                    | 0.23       |                               | $          | 0.22 |   | $ | 0.37 |   | $ | 0.40 |   |
| Diluted as reported                                                                                                 |       | $                                    | 0.25       |                               | $          | 0.24 |   | $ | 0.41 |   | $ | 0.44 |   |
| Diluted pro-forma                                                                                                   |       | $                                    | 0.23       |                               | $          | 0.22 |   | $ | 0.37 |   | $ | 0.40 |   |

 

On December 16,2004, the Financial Accounting Standards Board (“FASB”) issued FASB StatementNo. 123 (revised 2004), *Share-Based Payment*(Statement123(R)), which is a revision of FASB Statement No. 123, *Accounting for Stock-Based Compensation*. Statement123(R) supersedes APB Opinion No. 25, *Accountingfor Stock Issued to Employees*, and amends FASB StatementNo. 95, *Statement of Cash Flows*.Generally, the approach in Statement 123(R) is similar to the approachdescribed in Statement 123. However, Statement 123(R) requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the income statement based on their fair values at the time ofgrant. Pro forma disclosure will no longer be an alternative.

 

8

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In connection with theSecurities Exchange Commission’s amendment of its rules, Statement123(R) must be adopted no later than January 1, 2006. Early adoption willbe permitted in periods in which financial statements have not yet been issued.We expect to adopt Statement 123(R) on January 1, 2006.

 

Statement123(R) permits public companies to adopt its requirements using one of twomethods: (1) a “modified prospective” method in which compensation cost isrecognized beginning with the effective date (a) based on the requirementsof Statement 123(R) for all share-based payments granted after theeffective date and (b) based on the requirements of Statement 123 for allawards granted to employees prior to the effective date of Statement123(R) that remain unvested on the effective date; (2) a “modifiedretrospective” method which includes the requirements of the modifiedprospective method described above, but also permits entities to restate basedon the amounts previously recognized under Statement 123 for purposes of proforma disclosures either (a) all prior periods presented or (b) priorinterim periods of the year of adoption.

 

We have determined thatwe will adopt the “modified prospective” method under Statement 123(R).

 

As permitted by Statement 123, we currentlyaccount for share-based payments to employees using Opinion 25’s intrinsicvalue method and, as such, generally recognize no compensation cost foremployee stock options. Accordingly, the adoption of Statement 123(R)’s fairvalue method will have a significant impact on our result of operations,although it will have no impact on our overall financial position. The impactof adoption of Statement 123(R) cannot be predicted at this time becauseit will depend on levels of share-based payments granted in the future and onthe model chosen to determine fair value for grants after January 1, 2006.However, had we adopted Statement 123(R) in prior periods based on our useof the Black-Scholes option pricing model, the impact of that standard wouldhave approximated the impact of Statement 123 as described above in thedisclosure of pro forma net income and earnings per share. While Statement123(R) permits entities to continue use of the Black-Scholes optionpricing model, Statement 123(R) also permits the use of a “binomial model.”We currently expect that we will continue to utilize the Black-Scholes optionpricing model upon the adoption of Statement 123(R).

 

8.               Reclassifications - Certain prior yearamounts have been reclassified to conform to the current period presentation.

 

9

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**Item 2****.****                                   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Overview**

 

•       We sellupscale, name brand home furnishings, gifts and related items significantlybelow retail prices charged by department and specialty stores throughout 692stores in 45 states. We have a unique event-based selling strategy that createsa sense of urgency and excitement for our customer base.

 

•       Our storebase has grown at approximately 10% per year for each of the last five years,and during the first six months of 2005 we expanded our store base by 38 newstores and had 8 store closures.

 

•       During thesecond quarter of 2005 we paid our first annual dividend of $26.9 million toour common stockholders and intend in the future to continue our payment of anannual dividend to our stockholders.

 

•       Ouroperating profits, combined with more efficient use of working capital andincreased inventory turns over past years have increased cash flow, which hasbeen used to reduce debt. At June 30,2005, we had $3.5 million in debt outstanding as compared to $44.5 million indebt outstanding at June 30, 2004. We anticipate using our revolving creditfacility during certain periods of the remainder of 2005 for inventorypurchases and capital expenditures, but we expect to generate excess cash flowfor the fiscal year 2005. We will be evaluating appropriate uses of our excesscash flow in the future, including the use of capital to expand the businessand to pay future dividends.

 

**LeaseAccounting Adjustment**

 

Basedon certain views expressed in a letter of February 7, 2005 from the Officeof the Chief Accountant of the Securities and Exchange Commission to theAmerican Institute of Certified Public Accountants, we reviewed our accountingpolicies and practices associated with operating leases. Consistent withindustry practices, we historically reported straight-line rental expensebeginning on the lease commencement date. This had the effect of excluding therent holiday associated with the pre-opening or build-out period of our storesfrom the calculation of the period over which we expensed rent. Following ourreview, we modified our accounting policies such that we begin recording rentexpense on the date we take possession of or have the right to use thepremises.

 

Asa result of this adjustment, we recorded a non-cash,$3.9 million ($2.4 million, net of income tax or $0.06 per dilutedshare) cumulative charge to earnings during the first quarter of 2005. Theadjustment did not impact historical or future net cash flows nor the timing of the payments under related leases. Webelieve that the new lease accounting policies will not have a material effecton future diluted earnings per share. Prior years’ financial statements werenot restated as the impact of this issue was immaterial to previously reportedresults for any individual previous periods.

 

**Resultsof Operations**

 

Thefollowing table sets forth certain financial information from our consolidatedstatements of income expressed as a percentage of net sales.  Our business is highly seasonal, with asignificant portion of our net sales and most of our operating income generatedin the fourth quarter, which includes the holiday season. There can be noassurance that the trends in sales growth or operating results will continue inthe future.

 
| ** **                                       | ** ** | **Three Months Ended****June 30** | ** ** | **Six Months Ended   June 30** | ** ** |
|--------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------|------------|
| ** **                                       | ** ** | **2005**                               | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales                                        |       | 100.0                                  | %          | 100.0                               | %          | 100.0 | % | 100.0 | % |
| Cost of sales                                    |       | 62.8                                   |       | 63.7                                |       | 61.9 |   | 62.5 |   |
| Gross profit                                     |       | 37.2                                   |       | 36.3                                |       | 38.1 |   | 37.5 |   |
| Selling, general and administrative expense      |       | 29.6                                   |       | 28.4                                |       | 31.4 |   | 29.6 |   |
| Operating income                                 |       | 7.6                                    |       | 7.9                                 |       | 6.7 |   | 7.9 |   |
| Net interest expense and other income  (expense) |       | 0.1                                    |       | (0.2                                | )          | 0.1 |   | (0.1 | ) |
| Income before income taxes                       |       | 7.7                                    |       | 7.7                                 |       | 6.8 |   | 7.8 |   |
| Income tax expense                               |       | 2.9                                    |       | 2.9                                 |       | 2.5 |   | 3.0 |   |
|                                             |       |                                   |       |                                |       |   |   |   |   |
| Net income                                       |       | 4.8                                    | %          | 4.8                                 | %          | 4.3 | % | 4.8 | % |

 

10

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**Three Months Ended June 30, 2005**

**Comparedto the Three Months Ended June 30, 2004**

 

Duringthe second quarter of 2005, net sales increased to $218.8 million from $210.7million, an increase of $8.1 million or 3.8% compared to the same quarter of2004. The increase in second quarter sales is primarily due to sales fromnon-comparable new stores, offset by a 4.7% decrease in comparable storesales.  The decrease in comparable storesales for the second quarter of 2005 was comprised of a nominal decrease in thenumber of transactions and a 4.3% decrease in the average transactionamount.  Average store sales for thesecond quarter of 2005 decreased 7.5% when compared to the same prior yearquarter.

 

Grossprofit increased $5.0 million or 6.6% to $81.4 million for the three months endedJune 30, 2005 as compared to last year’s second quarter of $76.4 million,primarily as a result of our increased net sales.  Our gross profit percentage increased to37.2% from 36.3% in the prior year’s second quarter.  This 0.9% increase is primarily due to thedecrease in the cost of markdowns taken during the second quarter of 2005 andto a lesser extent the leveraging of our freight and distribution costs.

 

Selling,general and administrative expenses are comprised of store labor, storeoccupancy costs, advertising, miscellaneous store operating expenses andcorporate office costs. Increases in dollar amounts of these expenses areattributable to increases in the number of stores and increases in variableexpenses due to sales growth. Variable expenses include payroll and relatedbenefits, advertising expense and other expenses such as credit card fees.

 

Selling,general and administrative expenses increased $4.8 million, or 8.1%, to $64.7million from $59.8 million in the second quarter of 2004.  The increase was attributable to the openingof new stores and increases in advertising expense.  As a percentage of net sales these expensesincreased 1.2% to 29.6% in second quarter of 2005 from 28.4% in the secondquarter of 2004.  The increasedpercentage is primarily due to reduced expense leveraging given our negativecomparable store sales and includes a 0.9% increase related to rent, occupancyand depreciation expense and a 0.8% increase in advertising, offset by a 0.5%decrease in general and administrative expenses.

 

Netinterest and other income (expense) decreased $0.4 million compared to thesecond quarter of 2004.   This reductionis a result of limited borrowings under our revolving credit line in the secondquarter of 2005 as compared to the second quarter of 2004.

 

Theincome tax provision for the three month periods ended June 30, 2005 and2004 was $6.4 million and $6.3 million, respectively, reflecting an effectivetax rate of 37.6% and 38.6%, respectively. The effective tax rate is lower in the second quarter of 2005 ascompared to the second quarter of 2004 due to a lower estimated annualeffective tax for 2005.

 

**Six Months Ended June 30, 2005**

**Comparedto the Six Months Ended June 30, 2004**

 

Duringthe first six months of 2005, net sales increased to $404.4 million from $379.3million, an increase of $25.1 million or 6.6% compared to the same period of2004. The increase in sales for the first six months of 2005 is primarily dueto sales from non-comparable new stores, offset by a 2.7% decrease incomparable store sales.  The decrease incomparable store sales for the first six months of 2005 was comprised of anominal decrease in the number of transactions and a 2.3% decrease in theaverage transaction amount.  Averagestore sales for the first six months of 2005 decreased 5.5% when compared tothe same prior year period. 

 

Grossprofit increased $11.6 million or 8.1% to $154.0 million for the six monthsended June 30, 2005 as compared to the six month period last year of$142.4 million, primarily as a result of our increased net sales.  Our gross profit percentage increased to38.1% from 37.5% in the prior year’s six month period.  This 0.6% increase is primarily due to a 0.3%improvement in our leveraging of our distribution and freight expenses and a0.3% reduction in the cost of markdowns.

 

Selling,general and administrative expenses increased $14.4 million, or 12.8%, to$126.8 million in the first six months of 2005 from $112.4 million in the firstsix months of 2004.  The increase wasattributable to the opening of new stores, to the $3.9 million lease accountingadjustment taken in the first quarter of 2005 and to increases in variableexpenses.  As a percentage of net salesthese expenses increased 1.8% to 31.4% in the first six months of 2005 from29.6% in the first six months of 2004. The increased percentage is primarily due to reduced expense leveraginggiven our negative comparable store sales and includes a 1.0% increase in rentexpense due to the lease accounting adjustment and a 0.8% increase related torent, occupancy and depreciation expense.

 

Netinterest and other income (expense) decreased $0.6 million compared to thefirst six months of 2004.  This reductionis a result of limited borrowings under our revolving credit line in the firstsix months of 2005 as compared to the first six months of 2004.

 

Theincome tax provision for the six month periods ended June 30, 2005 and2004 was $10.1 million and $11.4 million, respectively, reflecting an effectivetax rate of 37.1% and 38.5%, respectively. The effective tax rate is lower in the first six months of 2005 ascompared to the first six months of 2004 due to a lower estimated annualeffective tax for 2005 and the adjustment of tax reserves

 

11

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related to favorable settlements with taxingauthorities. 

 

**Liquidity and Capital Resources**

 

Wehave financed our operations with funds generated from operating activities andborrowings under our revolving credit facility. Our cash flow strategy duringthe last three years has been focused on funding our store growth anddistribution improvements and reducing our debt and financing costs associatedwith our recapitalization in 1997. Our cash flows will continue to be utilizedfor the expansion of our business and to pay future annual dividends. We haveno off-balance sheet arrangements or transactions with unconsolidated, limitedpurpose or variable interest entities, nor do we have material transactions orcommitments involving related persons or entities.

 

Net cash used in operating activities for the six months endedJune 30, 2005 and 2004 was $9.8 million and $48.5 million, respectively,representing a $38.7 million decrease. This decrease is predominantly due tothe decrease in inventory purchases in the first six months of 2005 as comparedto the first six months of 2004.

 

At June 30, 2005, our inventory increased $18.6 million to $207.7million from $189.1 million at December 31, 2004 primarily due to theincrease in the number of stores.

 

Capitalexpenditures principally associated with new store opening and warehouseequipment were $8.6 million and $11.9 million for the six months endedJune 30, 2005 and 2004, respectively. We expect to spend approximately $9.4 million for additional capitalexpenditures for the remainder of 2005, which will include the opening of newstores, enhancements of selected stores, and purchases of equipment for ourdistribution center.

 

Duringthe second quarter of 2005, our board of directors approved the issuance of ourfirst annual dividend of $0.65 per share of common stock.  The dividend of $26.9 million was paid onJune 20, 2005 to the 41.3 million shareholders of record on June 6, 2005.  In the future we intend to continue thepayment of an annual dividend.

 

Wehave a $210 million revolving credit facility that expires in December2009.  Any borrowing under therevolving credit facility will incur interest at LIBOR or the prime rate,depending on the type of borrowing, plus an applicable margin. We incurcommitment fees of up to 0.25% on the unused portion of the revolving creditfacility. This rate is reduced or increased as our average total leverage ratiochanges. Our indebtedness under the credit facility is secured by a lien on ourinventory and cash accounts, as well as a pledge of our ownership interests inall of our subsidiaries.

 

AtJune 30, 2005, we had $3.5 million in debt outstanding under the revolvingcredit facility and had availability of $196.8 million.  As of June 30, 2005 and 2004, we hadoutstanding letters of credit of $9.7 million and $7.9 million, respectively,primarily for self-insurance.

 

Therevolving credit facility contains certain restrictive covenants, which amongother things, require us to comply with certainfinancial ratios covering maximum leverage, minimum fixed charge coverage andminimum interest coverage. Other restrictions affect our ability to incur liensor make certain other restricted payments, sell assets or merge or consolidatewith any other person. As of June 30, 2005, we were in compliance with allcovenants.

 

We anticipate that our future net cash flows from operations and unusedborrowings under our revolving credit facility will be sufficient to fund ourworking capital needs, an annual dividend and planned capital expenditures forthe next 12 months.

 

**Store Openings/Closings**

 
| ** **                         | ** ** | **Six Months  Ended  June 30,  2005** | ** ** | **Six Months  Ended  June 30,  2004** | ** ** | **Twelve Months  Ended  December 31,  2004** | ** ** |
|------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
|                               |       |                                       |       |                                       |       |                                              |       |
| Stores open at beginning of period |       | 662                                        |       | 577                                        |       | 577                                               |       |
| Stores opened during the period    |       | 38                                         |       | 47                                         |       | 89                                                |       |
| Stores closed during the period    |       | (8                                         | )          | (3                                         | )          | (4                                                | )          |
| Stores open at end of period       |       | 692                                        |       | 621                                        |       | 662                                               |       |

 

12

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

 

Weare exposed to various market risks, including changes in foreign currencyexchange rates and interest rates. Market risk is the potential loss arising from adverse changes in marketprices and rates, such as foreign currency exchange and interest rates.  Based on our market risk sensitiveinstruments outstanding as of June 30, 2005, we have determined that therewas no material market risk exposure to our consolidated financial position,results of operations or cash flows as of such date.  Our market risk is discussed in more detailin our Annual Report on Form 10-K for the year ended December 31, 2004.  We do not enter into derivatives or otherfinancial instruments for trading or speculative purposes.  There have been no significant changes in theforeign currency exchange rate or interest rate market risks sinceDecember 31, 2004.

 

**Item 4**. Controls andProcedures

 

**DisclosureControls and Procedures**

 

Basedon our management’s evaluation (with participation of our principal executiveofficer and our principal financial officer), our principal executive officerand our principal financial officer have concluded that our disclosure controlsand procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under theSecurities Exchange Act of 1934, as amended) were effective as of June 30, 2005to ensure that material information required to be disclosed by us in thisQuarterly Report on Form 10-Q was recorded, processed, summarized and reported,within the time periods specified in the Securities and Exchange Commission’srules and forms.

 

A control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Because of inherent limitations inall control systems, no evaluation of controls can provide absolute assurancethat all control issues, if any, within a company have been detected.Accordingly, our disclosure controls and procedures are designed to providereasonable, not absolute, assurance that the objectives of our disclosurecontrol system are met and, as set forth above, our chief executive officer andchief financial officer have concluded, based on their evaluation as of the endof the period covered by this report, that our disclosure controls andprocedures were sufficiently effective to provide reasonable assurance that theobjectives of our disclosure control system were met.

 

**Changes in Internal Control OverFinancial Reporting**

 

There were no changes in ourinternal control over financial reporting that occurred during the quarterended June 30, 2005 that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

 

**PART II****- OTHER INFORMATION**

 

**Item 1.****  Legal****Proceedings**

 

During2001 and 2002, we were named as a defendant in three complaints filed in theSuperior Court of California in and for the County of Los Angeles. Theplaintiffs are seeking to certify a statewide class made up of some of ourcurrent and former employees, which they claim are owed compensation forovertime wages, penalties and interest. The plaintiffs are also seekingattorney’s fees and costs. In October 2003, we entered into a settlement agreementwith a sub-class of these plaintiffs consisting of manager-in-training andmanagement trainees.  The settlementagreement is currently under appeal by one of the plaintiffs.

 

InDecember 2003, we were named as a defendant in a new lawsuit filed in the SuperiorCourt of California, in and for the County of San Diego.  The plaintiffs are alleging failure to payfor minimum reporting time, travel time, split-shift premiums, meal periods andother labor issues.  We entered into asettlement agreement on July 7, 2005 with the plaintiffs.  There was no material impact to our financialstatements related to this settlement.

 

In June 2004, we were named as a defendant in a complaint filed inthe U.S. District Court, Central District of California. The plaintiff, ThomasKinkade Company (f/k/a/ Media Arts Group Inc.), is alleging copyrightinfringement and false advertisements on merchandise we sold in the secondquarter of 2004. This lawsuit is in the discovery phase.

 

We intend to vigorously defend all pending actions. We do not believethese or any other legal proceedings pending or threatened against us wouldhave a material adverse effect on our financial condition or results ofoperations.

 

13

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**Item 4****.********Submission of Matters to a Vote of Security Holders**

 

Atthe Annual Meeting of Stockholders held on May 17, 2005, the followingproposals were submitted to stockholders with the following results:

 

1.                              Election of six directors to serve untiltheir terms expire at the annual meeting of stockholders to be held in 2006, orthe earlier of retirement, resignation or removal

 
| ** **               | ** ** | **Number of Shares** | ** ** |
|--------------------------|------------|----------------------|------------|
| ** **               | ** ** | **For**              | ** ** | **Withheld** | ** ** | **Broker Non-Votes** | ** ** |
|                     |       |                 |       |   |   |   |   |
| Benjamin D. Chereskin    |       | 35,942,097           |       | 4,381,574 |   | — |   |
| Kathleen Mason           |       | 32,001,668           |       | 8,322,003 |   | — |   |
| William J. Hunckler, III |       | 35,980,249           |       | 4,343,422 |   | — |   |
| Robin P. Selati          |       | 34,664,679           |       | 5,658,992 |   | — |   |
| Henry F. Frigon          |       | 35,617,738           |       | 4,705,933 |   | — |   |
| Giles H. Bateman         |       | 38,668,644           |       | 1,665,027 |   | — |   |

 

2.                              Ratification of theselection of Ernst & Young as our independent registered public accountingfirm for the year ending December 31, 2005

 
| ** ** | ** ** | **Number of Shares** | ** ** |
|------------|------------|----------------------|------------|
|       |       |                 |       |
| For        |       | 40,301,587           |       |
|       |       |                 |       |
| Against    |       | 13,539               |       |
|       |       |                 |       |
| Abstain    |       | 8,545                |       |

 

Noother matters were voted upon at the meeting.

 

**Item 5.****Other Information**

 

Therehave been no material changes to the procedures by which security holders mayrecommend nominees to our Board of Directors since April 21, 2003.

 

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**Item 6.**** **** Exhibits**

 
| **Exhibit Number** | ** ** | **Title of  Exhibit**                                                                                                                                                                                                                                                                                                                            |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                |       | Certificate  of Incorporation of Tuesday Morning Corporation (the “Company”) (incorporated  by reference to Exhibit 3.1 to the Company’s Registration Statement on Form  S-4 (File No. 333-46017) as filed with the Securities and Exchange Commission  (the “Commission”) on February 10, 1998)                        |
| 3.1.2              |       | Certificate  of Amendment to the Certificate of Incorporation of the Company dated March  25, 1999 (incorporated by reference to Exhibit 3.3 to the Company’s  Registration Statement on Form S-1/A (File No. 333-74365) as filed with the  Commission on March 29, 1999)                                                                   |
| 3.1.3              |       | Certificate  of Amendment to the Certificate of Incorporation of the Company dated May 7,  1999 (incorporated by reference to Exhibit 3.1.3 to the Company’s Form 10Q  (File No. 000-19658) as filed with the Commission on May 2, 2005)                                                                                                    |
| 3.2                |       | Amended  and Restated By-laws of the Company. (incorporated by reference to Exhibit  3.7 to the Company’s Registration Statement on Form S-4 (File No. 333-46017)  as filed with the Commission on February 10, 1998)                                                                                                                       |
| 10.1               |       | Form  of Incentive Stock Option Agreement under the Tuesday Morning Corporation  1997 Long-Term Equity Incentive Plan and the Tuesday Morning Corporation 2004  Long-Term Equity Incentive Plan (incorporated by reference to exhibit 10.1 to  the Company’s Form 8-K (File No. 000-19658) as filed with the Commission on  May 3, 2005)    |
| 10.2               |       | Form  of Nonqualified Stock Option Agreement under the Tuesday Morning Corporation  1997 Long-Term Equity Incentive Plan and the Tuesday Morning Corporation 2004  Long-Term Equity Incentive Plan (incorporated by reference to exhibit 10.2 to  the Company’s Form 8-K (File No. 000-19658) as filed with the Commission on  May 3, 2005) |
| 10.3               |       | First  Amendment to the Tuesday Morning Corporation 1997 Long-Term Equity Incentive Plan                                                                                                                                                                                                                                                         |
| 10.4               |       | First  Amendment to the Tuesday Morning Corporation 2004 Long-Term Equity Incentive  Plan                                                                                                                                                                                                                                                        |
| 31.1               |       | Certification  by the Chief Executive Officer of the Company pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                          |
| 31.2               |       | Certification  by the Chief Financial Officer of the Company pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                          |
| 32.1               |       | Certifications  of the Chief Executive Officer of the Company pursuant to 18 U.S.C. §1350,  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *                                                                                                                                                                             |
| 32.2               |       | Certifications  of the Chief Financial Officer of the Company pursuant to 18 U.S.C. §1350,  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *                                                                                                                                                                             |

 

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*                 Thecertifications attached hereto as Exhibit 32.1 and Exhibit 32.2 arefurnished with this Quarterly Report on Form 10-Q and shall notbe deemed “filed” by the Company for purposes of Section 18 of theSecurities Exchange Act of 1934, as amended.

 

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SIGNATURE

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| ** ** |            | **TUESDAY MORNING CORPORATION** |                                                                                                                                                                                                  |
|------------|-----------------|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |            | (Registrant)                    | ** **                                                                                                                                                                                            |
|       |            |                            |                                                                                                                                                                                                  |
|       |            |                            |                                                                                                                                                                                                  |
| DATE:      | August  1, 2005 | By:                             | /s/  Loren K. Jensen                                                                                                                                                                                  |   |
|       |            |                            | Loren  K. Jensen, Executive Vice President,  Chief Financial Officer, Treasurer and Secretary   (Principal Financial Officer and duly   authorized to sign this report on behalf of the   registrant) |
|            |                 |                                 |                                                                                                                                                                                                       |  |  |  |

 

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**EXHIBIT INDEX**

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                 |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                                                                            |
| 3.1              |       | Certificate of Incorporation of Tuesday  Morning Corporation (the “Company”) (incorporated by reference to Exhibit 3.1  to the Company’s Registration Statement on Form S-4 (File No. 333-46017) as  filed with the Securities and Exchange Commission (the “Commission”) on  February 10, 1998)                       |
| 3.1.2            |       | Certificate of Amendment to the Certificate  of Incorporation of the Company dated March 25, 1999 (incorporated by  reference to Exhibit 3.3 to the Company’s Registration Statement on Form  S-1/A (File No. 333-74365) as filed with the Commission on March 29, 1999)                                                                   |
| 3.1.3            |       | Certificate of Amendment to the Certificate  of Incorporation of the Company dated May 7, 1999 (incorporated  by reference to Exhibit 3.1.3 to the Company’s Form 10Q (File No. 000-19658) as  filed with the Commission on May 2, 2005).                                                                                                  |
| 3.2              |       | Amended and Restated By-laws of the Company  (incorporated by reference to Exhibit 3.7 to the Company’s Registration  Statement on Form S-4 (File No. 333-46017) as filed with the Commission on  February 10, 1998)                                                                                                                       |
| 10.1             |       | Form of Incentive Stock Option Agreement under the  Tuesday Morning Corporation 1997 Long-Term Equity Incentive Plan and the  Tuesday Morning Corporation 2004 Long-Term Equity Incentive Plan  (incorporated by reference to exhibit 10.1 to the Company’s Form 8-K (File  No. 000-19658) as filed with the Commission on May 3, 2005)    |
| 10.2             |       | Form of Nonqualified Stock Option Agreement under  the Tuesday Morning Corporation 1997 Long-Term Equity Incentive Plan and the  Tuesday Morning Corporation 2004 Long-Term Equity Incentive Plan  (incorporated by reference to exhibit 10.2 to the Company’s Form 8-K (File  No. 000-19658) as filed with the Commission on May 3, 2005) |
| 10.3             |       | First Amendment to the Tuesday Morning Corporation  1997 Long-Term Equity Incentive Plan                                                                                                                                                                                                                                                        |
| 10.4             |       | First Amendment to the Tuesday Morning Corporation  2004 Long-Term Equity Incentive Plan                                                                                                                                                                                                                                                        |
| 31.1             |       | Certification by the Chief Executive  Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                         |
| 31.2             |       | Certification by the Chief Financial  Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                         |
| 32.1             |       | Certification of the Chief Executive  Officer of the Company pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                             |
| 32.2             |       | Certification of the Chief Financial  Officer of the Company pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                             |

 

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*                 The certifications attached hereto asExhibit 32.1 and Exhibit 32.2 are furnished with this Quarterly Report on Form10-Q and shall not be deemed “filed” by the Company for purposes of Section 18of the Securities Exchange Act of 1934, as amended.

 

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