Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

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

 

**FORTHE QUARTERLY PERIOD ENDED**

**December 31,2008**

 

**OR**

 

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

 

**FORTHE TRANSITION PERIOD**

**FROM       TO       **

 

**Commissionfile number 0-19658**

 

**TUESDAYMORNING CORPORATION**

(Exact Name ofRegistrant as Specified in its Charter)

 

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

 

**6250LBJ Freeway**

**Dallas,Texas 75240**

(Address,including zip code, of principal executive offices)

 

**(972)387-3562**

(Registrant’stelephone number, including area code)

 

**Notapplicable**

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

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  oNo  x

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

| **Class**                               | ** ** | **Outstanding at January 28, 2009** |
|-----------------------------------------|------------|---------------------------------------------------------|
| Common Stock, par value $0.01 per share |       | 43,056,529                                              |

 

 

 

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**Forward-LookingStatements**

 

*ThisQuarterly Report on Form 10-Q contains forward-looking statements withinthe meaning of the federal securities laws and the Private SecuritiesLitigation Reform Act of 1995, which are based on management’s currentexpectations, estimates and projections. These statements may be foundthroughout this Form 10-Q particularly under the heading “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”among others. Forward-looking statements typically are identified by the use ofterms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,”“intend” and similar words, although some forward-looking statements areexpressed differently. You should consider statements that contain these wordscarefully because they describe our expectations, plans, strategies and goalsand our beliefs concerning future business conditions, our future results ofoperations, our future financial position, and our business outlook or stateother “forward-looking” information.*

 

*Readersare referred to”Item 1A. Risk Factors” of our Annual Report on Form 10-Kfor the year ended June 30, 2008 for examples of risks, uncertainties andevents that could cause our actual results to differ materially from theexpectations expressed in our forward-looking statements. These risks,uncertainties and events also include, but are not limited to, the following:*

 

·                    *uncertainties regarding our ability to open stores innew and existing markets and operate these stores on a profitable basis;*

·                    *conditions affecting consumer spending and the impactof the current economic downturn;*

·                    *inclement weather;*

·                    *changes in our merchandise mix;*

·                    *timing and type of sales events, promotionalactivities and other advertising;*

·                    *increased or new competition;*

·                      *loss or departure of one or more members of oursenior management as well as experienced buying and management personnel;*

·                    *an increase in the cost or a disruption in the flowof our products;*

·                    *seasonal and quarterly fluctuations;*

·                    *fluctuations in our comparable store results;*

·                    *our ability to operate in highly competitive marketsand to compete effectively;*

·                    *our ability to operate information systems andimplement new technologies effectively;*

·                    *our ability to generate strong cash flows from ouroperations;*

·                    *our ability to maintain internal control overfinancial reporting;*

·                    *our ability to continue obtaining funding fromexternal sources;*

·                    *our ability to anticipate and respond in a timelymanner to changing consumer demands and preferences; and*

·                    *our ability to generate strong holiday season sales.*

 

*Theforward-looking statements made in this Form 10-Q relate only to events asof the date on which the statements were made. Except as may be required bylaw, we undertake no obligation to update our forward-looking statements toreflect events and circumstances after the date on which the statements weremade or to reflect the occurrence of unanticipated events.*

 

*Theterms “Tuesday Morning,”“the Company,” “we,” “us” and “our” as used in thisQuarterly Report on Form 10-Q refer to Tuesday Morning Corporation and itssubsidiaries.*

 

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| ** **                                                                                                    | **Page**   |
|---------------------------------------------------------------------------------------------------------------|------------|
| **PART I -  FINANCIAL INFORMATION**                                                                      | 1          |
|                                                                                                          |       |
| Item 1 —  Financial Statements                                                                           | 1          |
|                                                                                                          |       |
| Consolidated  Balance Sheets as of December 31, 2008 and June 30, 2008                              | 1          |
|                                                                                                          |       |
| Consolidated  Statements of Income for the Three Months and Six Months Ended December 31,  2008 and 2007 | 2          |
|                                                                                                          |       |
| Consolidated  Statements of Cash Flows for the Six Months Ended December 31, 2008 and  2007              | 3          |
|                                                                                                          |       |
| Notes  to Consolidated Financial Statements                                                                   | 4          |
|                                                                                                          |       |
| Item  2 — Management’s Discussion and Analysis of Financial Condition and Results  of Operations    | 7          |
|                                                                                                          |       |
| Item  3 — Quantitative and Qualitative Disclosures About Market Risk                                     | 10         |
|                                                                                                          |       |
| Item  4 — Controls and Procedures                                                                        | 11         |
| ** **                                                                                                    | ** ** |
| **PART II  — OTHER INFORMATION**                                                                    | 11         |
| ** **                                                                                                    | ** ** |
| Item  1 — Legal Proceedings                                                                              | 11         |
|                                                                                                          |       |
| Item 1A  — Risk Factors                                                                                  | 11         |
|                                                                                                          |       |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                            | 12         |
|                                                                                                          |       |
| Item  5 — Other Information                                                                              | 13         |
|                                                                                                          |       |
| Item 6 —  Exhibits                                                                                       | 14         |

 

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**PART I — FINANCIAL INFORMATION**

 

**Item1. Financial Statements**

 

**TuesdayMorning Corporation**

**Consolidated Balance Sheets**

**December 31,2008 (unaudited) and June 30, 2008**

**(Inthousands, except per share data)**

 
| ** **                                                                                                                                                                               | ** ** | **December 31,  2008** | ** ** | **June 30,  2008** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                               | ** ** | ** **                  | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                               |       |                        |       |                    |       |
| Current assets:                                                                                                                                                                          |       |                        |       |                    |       |
| Cash and cash  equivalents                                                                                                                                                               |       | $                           | 5,839      |                    | $          | 8,630 |   |
| Inventories                                                                                                                                                                              |       | 260,888                     |       | 240,996                 |       |
| Prepaid expenses  and other current assets                                                                                                                                               |       | 9,407                       |       | 11,292                  |       |
| Deferred income  taxes                                                                                                                                                                   |       | 2,080                       |       | —                  |       |
| Total current  assets                                                                                                                                                                    |       | 278,214                     |       | 260,918                 |       |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| Property and  equipment, net                                                                                                                                                             |       | 75,714                      |       | 77,315                  |       |
| Deferred  financing costs                                                                                                                                                                |       | 3,551                       |       | 503                     |       |
| Other assets                                                                                                                                                                             |       | 2,562                       |       | 3,040                   |       |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| Total Assets                                                                                                                                                                             |       | $                           | 360,041    |                    | $          | 341,776 |   |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                            |       |                        |       |                    |       |
| Current  liabilities:                                                                                                                                                                    |       |                        |       |                    |       |
| Accounts payable                                                                                                                                                                         |       | $                           | 73,301     |                    | $          | 63,899 |   |
| Accrued  liabilities                                                                                                                                                                     |       | 32,048                      |       | 28,862                  |       |
| Income taxes  payable                                                                                                                                                                    |       | 4,296                       |       | 27                      |       |
| Total current  liabilities                                                                                                                                                               |       | 109,645                     |       | 92,788                  |       |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| Revolving credit  facility                                                                                                                                                               |       | 2,030                       |       | 8,500                   |       |
| Deferred rent                                                                                                                                                                            |       | 4,043                       |       | 4,163                   |       |
| Deferred income  taxes                                                                                                                                                                   |       | 2,017                       |       | 3,414                   |       |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| Total  Liabilities                                                                                                                                                                       |       | 117,735                     |       | 108,865                 |       |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| 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; 41,475,820 shares  issued and outstanding at December 31, 2008 and 41,440,000 shares at  June 30, 2008 |       | 423                         |       | 418                     |       |
| Additional  paid-in capital                                                                                                                                                              |       | 202,129                     |       | 201,154                 |       |
| Retained  earnings                                                                                                                                                                       |       | 39,791                      |       | 31,378                  |       |
| Accumulated  other comprehensive income (loss)                                                                                                                                           |       | (37                         | )          | (39                     | )          |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| Total  Stockholders’ Equity                                                                                                                                                         |       | 242,306                     |       | 232,911                 |       |
|                                                                                                                                                                                     |       |                        |       |                    |       |
| Total  Liabilities and Stockholders’ Equity                                                                                                                                         |       | $                           | 360,041    |                    | $          | 341,776 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**TuesdayMorning Corporation**

**Consolidated Statements of Income(unaudited)**

**(Inthousands, except per share data)**

** **
| ** **                                    | ** ** | **Three Months Ended December 31,** | ** ** | **Six Months Ended December 31,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                                | ** ** | **2007**                                              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                          |       |                                                    |       |                                                  |       |   |   |   |   |
| Net sales                                     |       | $                                                       | 272,650    |                                                  | $          | 308,687 |   | $ | 446,051 |   | $ | 510,344 |   |
| Cost of sales                                 |       | 171,755                                                 |       | 193,783                                               |       | 281,000 |   | 319,731 |   |
| Gross profit                                  |       | 100,895                                                 |       | 114,904                                               |       | 165,051 |   | 190,613 |   |
| Selling, general  and administrative expenses |       | 80,315                                                  |       | 80,664                                                |       | 151,227 |   | 153,208 |   |
| Operating income                              |       | 20,580                                                  |       | 34,240                                                |       | 13,824 |   | 37,405 |   |
| Other income  (expense):                      |       |                                                    |       |                                                  |       |   |   |   |   |
| Interest income                               |       | —                                                  |       | 152                                                   |       | 1 |   | 153 |   |
| Interest expense                              |       | (717                                                    | )          | (1,420                                                | )          | (1,127 | ) | (3,106 | ) |
| Other income,  net                            |       | 192                                                     |       | 195                                                   |       | 271 |   | 572 |   |
|                                          |       | (525)                                                   |       | (1,073                                                | )          | (855 | ) | (2,381 | ) |
| Income before  income taxes                   |       | 20,055                                                  |       | 33,167                                                |       | 12,969 |   | 35,024 |   |
| Income tax  expense                           |       | 7,344                                                   |       | 12,633                                                |       | 4,556 |   | 13,334 |   |
|                                          |       |                                                    |       |                                                  |       |   |   |   |   |
| Net income                                    |       | $                                                       | 12,711     |                                                  | $          | 20,534 |   | $ | 8,413 |   | $ | 21,690 |   |
|                                          |       |                                                    |       |                                                  |       |   |   |   |   |
| **Earnings  Per Share**                       |       |                                                    |       |                                                  |       |   |   |   |   |
| Net income per  common share:                 |       |                                                    |       |                                                  |       |   |   |   |   |
| Basic                                         |       | $                                                       | 0.31       |                                                  | $          | 0.50 |   | $ | 0.20 |   | $ | 0.52 |   |
| Diluted                                       |       | $                                                       | 0.31       |                                                  | $          | 0.50 |   | $ | 0.20 |   | $ | 0.52 |   |
| Weighted average  number of common shares:    |       |                                                    |       |                                                  |       |   |   |   |   |
| Basic                                         |       | 41,462                                                  |       | 41,441                                                |       | 41,451 |   | 41,437 |   |
| Diluted                                       |       | 41,587                                                  |       | 41,451                                                |       | 41,597 |   | 41,456 |   |
|                                          |       |                                                    |       |                                                  |       |   |   |   |   |
| Dividends per  common share                   |       | $                                                       | —     |                                                  | $          | — |   | $ | — |   | $ | — |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**TuesdayMorning Corporation**

**Consolidated Statements of Cash Flows(unaudited)**

**(Inthousands)**

** **
| ** **                                                                                 | ** ** | **Six Months Ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
|                                                                                       |       |                                              |       |   |   |
| **Net  cash flows from operating activities:**                                             |       |                                              |       |   |   |
| Net income                                                                                 |       | $                                                 | 8,413      |   | $ | 21,690 |   |
| Adjustments to  reconcile net income to net cash used in operating activities:             |       |                                              |       |   |   |
| Depreciation and  amortization                                                             |       | 8,446                                             |       | 8,854 |   |
| Amortization of  financing fees                                                            |       | 226                                               |       | 101 |   |
| Deferred income  taxes                                                                     |       | (3,910                                            | )          | (851 | ) |
| Loss on disposal  of assets                                                                |       | 185                                               |       | 236 |   |
| Stock-based  compensation                                                                  |       | 1,140                                             |       | 2,028 |   |
| Other non-cash  items                                                                      |       | 4                                                 |       | 35 |   |
| Change in  operating assets and liabilities:                                               |       |                                              |       |   |   |
| Inventories                                                                                |       | (19,885                                           | )          | 29,234 |   |
| Prepaid and  other assets                                                                  |       | 2,363                                             |       | (733 | ) |
| Accounts payable                                                                           |       | 958                                               |       | (16,555 | ) |
| Accrued  liabilities                                                                       |       | 3,453                                             |       | 5,000 |   |
| Deferred rent                                                                              |       | (120                                              | )          | (144 | ) |
| Income taxes payable                                                                       |       | 4,269                                             |       | 14,696 |   |
| Net cash  provided by operating activities                                                 |       | 5,542                                             |       | 63,591 |   |
|                                                                                       |       |                                              |       |   |   |
| **Net  cash flows from investing activities:**                                             |       |                                              |       |   |   |
| Capital  expenditures                                                                      |       | (7,032                                            | )          | (6,100 | ) |
| Net cash used in  investing activities                                                     |       | (7,032                                            | )          | (6,100 | ) |
|                                                                                       |       |                                              |       |   |   |
| **Net cash  flows from financing activities:**                                             |       |                                              |       |   |   |
| Repayments under  revolving credit facility                                                |       | (153,941                                          | )          | (168,000 | ) |
| Proceeds under  revolving credit facility                                                  |       | 147,471                                           |       | 118,500 |   |
| Change in cash  overdraft                                                                  |       | 8,444                                             |       | (6,297 | ) |
| Payment of debt  financing costs                                                           |       | (3,275                                            | )          | — |   |
| Proceeds from  exercise of common stock options and used for stock purchase plan purchases |       | —                                            |       | (4 | ) |
| Net cash used in  financing activities                                                     |       | (1,301                                            | )          | (55,801 | ) |
| Net increase in  cash and cash equivalents                                                 |       | (2,791                                            | )          | 1,690 |   |
| Cash and cash  equivalents, beginning of period                                            |       | 8,630                                             |       | 10,303 |   |
| Cash and cash  equivalents, end of period                                                  |       | $                                                 | 5,839      |   | $ | 11,993 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**Tu****esday Morning Corporation**

**Notes to Consolidated FinancialStatements (unaudited)**

 

1.    Basis ofpresentation — The unaudited consolidated interim financial statements includedherein have been prepared by us pursuant to the rules and regulations ofthe Securities and Exchange Commission. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States have beencondensed or omitted pursuant to such rules and regulations. Thesefinancial statements include all adjustments, consisting only of those of anormal recurring nature, which, in the opinion of management, are necessary topresent fairly the results of the interim periods presented and should be readin conjunction with the consolidated financial statements and notes thereto inour Form 10-K filing for the year ended June 30, 2008. Because of theseasonal nature of our business, the results of operations for the quarter arenot indicative of the results to be expected for the entire year.

 

The balance sheet at June 30,2008 has been derived from the audited consolidated financial statements atthat date but does not include all of the information and notes required byU.S. generally accepted accounting principles for complete financialstatements.  For further information, refer to the consolidated financialstatements and notes thereto included in our Form 10-K for the year ended June 30,2008.  We operate our business as a single operating segment.

 

2.    Stock-basedcompensation — We account for our stock-based compensation plan in accordancewith Statement of Financial Accounting Standards (“SFAS”) 123 (revised 2004) “Share-BasedPayment” (“SFAS 123R”).  Under SFAS 123R, all stock-based compensationcost is measured at the grant date, based on the estimated fair value of theaward, and is recognized as an expense in the income statement over therequisite service period.

 

We have established theTuesday Morning Corporation 1997 Long-Term Equity Incentive Plan, as amended(the “1997 Plan”), the Tuesday Morning Corporation 2004 Long-Term EquityIncentive Plan, as amended (the “2004 Plan”), and the 2008 Long-Term EquityIncentive Plan (the “2008 Plan”) which allow for the granting of stock optionsto directors, officers and key employees of, and certain other key individualswho perform services for us and our subsidiaries. The 1997 Plan authorizedgrants of options to purchase up to 4,800,000 shares of authorized, butunissued common stock.  Equity awards mayno longer be granted under the 1997 Plan but options granted under the plan arestill exercisable.  The 2004 Plan and the2008 Plan authorize grants of options to purchase up to 2,000,000, and2,500,000 shares, respectively, of authorized, but unissued common stock. Stock options are awarded with a strike price at a fair market value equal tothe average of the high and low trading prices of the Company’s common stock onthe date of grant in the 1997 Plan and the 2004 Plan.  Stock options are awarded with a strike priceat a fair market value equal to the average of the closing price of the Company’scommon stock on the date of the grant in the 2008 Plan.

 

Options granted under the1997 Plan, the 2004 Plan, and the 2008 Plan typically vest over periods ofthree to five years and expire in ten years. The exercise prices of the optionsrange between $1.07 and $35.23, which represents market value on the grant date. At December 31, 2008, all shares available under the 1997 Plan had beengranted and the 1997 Plan terminated as of December 29, 2007.  Therewere 1,493,567 and 1,390,291 shares available for grant under the 2004 Plan andthe 2008 Plan at December 31, 2008, respectively.

 

Under the terms of the2004 Plan, and the 2008 Plan, we may also grant restricted stock to compensatecertain directors, officers, key employees and certain other key individualswho perform services for us and our subsidiaries. Restricted stock awards arenot transferable, but bear rights of ownership including voting and dividendrights. Shares are valued at the market price at the date of award andgenerally vest over three to five years. Some grants of restricted shares also contain performanceprovisions.  As of December 31,2008, there were 1,580,709 shares of restricted stock outstanding with aweighted average fair value of $3.20 per share under the 2004 Plan and 2008Plan.

 

Stock compensationexpense recognized in the three months and six months ended December 31,2008 was as follows:

 
| ** **                                                | ** ** | **Three Months Ended  December 31, 2008** | ** ** | **Six Months Ended  December 31, 2008** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
|                                                      |       |                                                          |       |                                                        |       |
| Total cost of  stock-based compensation during the period |       | $                                                             | 291        |                                                        | $          | 1,146 |   |
| Amounts  capitalized in ending inventory                  |       | (156                                                          | )          | (558                                                        | )          |
| Amounts  recognized in expense previously capitalized     |       | 296                                                           |       | 552                                                         |       |
|                                                      |       |                                                          |       |                                                        |       |
| Amounts charged  against income for the period before tax |       | $                                                             | 431        |                                                        | $          | 1,140 |   |

 

3.    Comprehensiveincome - Comprehensive income is defined as net income plus the change inequity during a period from transactions and other events, excluding thoseresulting from investments by and distributions to stockholders.  We account for foreign currency forwardcontracts as cash flow hedges in accordance with Financial Accounting StandardsBoard (FASB) Statement 133,*Accounting forDerivative Instruments and Hedging Activities*.  Changes in thefair value of the contracts that are considered to be effective are recorded inother comprehensive income or loss until the hedged item is recorded inearnings.  Effective cash flow hedges are reclassified out of othercomprehensive income or loss and into cost of sales when the hedged inventoryis sold.  All of our cash flow hedges are effective.  The effect offoreign exchange contracts on our financial position or results of operationshas historically been immaterial.  Totalcomprehensive income for the three month period ended December 31, 2008and 2007 was $12.7 million and $20.5 million, respectively, and for the sixmonth period ended December 31, 2008 and 2007 was $8.4 million and $21.7million, respectively.

 

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4.    During 2001 and2002, we were named as a defendant in three complaints filed in the SuperiorCourt of California in and for the County of Los Angeles.  The plaintiffssought to certify a statewide class made up of some of our current and formeremployees, which they claim are owed compensation for overtime wages, penaltiesand interest. The plaintiffs also sought attorney’s fees and costs. In October 2003,we entered into a settlement agreement with a sub-class of these plaintiffsconsisting of managers-in-training and management trainees which was paid in November 2005with no material impact to our financial statements.  In August 2008,our motion for de-certification of the class of remaining plaintiffs wasgranted, thereby dismissing their class action claim.  The plaintiffs haveappealed this ruling and some may pursue their claims individually.

 

A similar lawsuit, whichalso alleges claims concerning meal and rest periods, was filed in OrangeCounty, California in 2004, by managers, managers-in-training and assistant managers,and an amended complaint was filed in January 2007. In September 2008,the plaintiffs abandoned their class action claim and have elected to pursuetheir claims under California’s Private Attorney General Act.  This matter is set for trial in September,2009.  A companion lawsuit alleging thesame claims was filed on December 26, 2008 on behalf of approximatelytwenty additional individual plaintiffs. This lawsuit includes a claim under California’s Private AttorneyGeneral Act.  The companion lawsuit isstill in the initial stages of litigation.  We do not expect either ofthese complaints to have a material impact to our financial statements.

 

In December 2008, aclass action lawsuit was filed by hourly, non-exempt employees in the SuperiorCourt of California in and for the County of Los Angeles, alleging claimscovering meal and rest period violations. This case is still in the initial stages of litigation and discovery hasnot yet begun.

 

We intend to vigorouslydefend all pending actions. We do not believe these or any other legalproceedings pending or threatened against us would have a material adverseeffect on our financial condition or results of operations.

 

5.     Earnings percommon share

 
| ** **                                                                                                               | ** ** | **Three Months Ended  December 31** | ** ** | **Six Months Ended  December 31** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands, except per share data)**                                                       | ** ** | **2008**                                           | ** ** | **2007**                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                                                     |       |                                               |       |                                             |       |   |   |   |   |
| **Basic  earnings per share:**                                                                                           |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                                                                                               |       | $                                                  | 12,711     |                                             | $          | 20,534 |   | $ | 8,413 |   | $ | 21,690 |   |
| Weighted average  number of common shares outstanding                                                                    |       | 41,462                                             |       | 41,441                                           |       | 41,451 |   | 41,437 |   |
| Net income per  common share                                                                                             |       | $                                                  | 0.31       |                                             | $          | 0.50 |   | $ | 0.20 |   | $ | 0.52 |   |
|                                                                                                                     |       |                                               |       |                                             |       |   |   |   |   |
| **Diluted  earnings per share:**                                                                                         |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                                                                                               |       | $                                                  | 12,711     |                                             | $          | 20,534 |   | $ | 8,413 |   | $ | 21,690 |   |
|                                                                                                                     |       |                                               |       |                                             |       |   |   |   |   |
| Dilutive effect  of employee stock options                                                                               |       | 29                                                 |       | —                                           |       | 62 |   | 9 |   |
| Dilutive effect  of restricted stock                                                                                     |       | 96                                                 |       | 10                                               |       | 84 |   | 10 |   |
| Weighted average  number of common shares outstanding                                                                    |       | 41,462                                             |       | 41,441                                           |       | 41,451 |   | 41,437 |   |
| Weighted average  number of common shares and diluted effect of outstanding employee stock  options and restricted stock |       | 41,587                                             |       | 41,451                                           |       | 41,597 |   | 41,456 |   |
|                                                                                                                     |       |                                               |       |                                             |       |   |   |   |   |
| Net income per  common share                                                                                             |       | $                                                  | 0.31       |                                             | $          | 0.50 |   | $ | 0.20 |   | $ | 0.52 |   |

 

6.    Revolvingcredit facility — On December 15, 2008, we entered into a new creditagreement providing for an asset-based, five-year senior secured revolvingcredit facility (the “Revolving Credit Facility”) in the amount of up to $150.0million.  On January 28, 2009, weentered into an amendment to increase the amount from $150.0 million to $180.0 million. The revolving credit facility may be increased by up to $70.0 million, not toexceed an aggregate total commitment of $250.0 million.  Our indebtedness under the credit facility issecured by a lien on substantially all of our assets.  The revolvingcredit facility contains, among other things, a “clean down” provisionrequirement that the sum of the aggregate principal amount of the outstandingloans and undrawn letters of credit may not exceed $45.0 million for 30consecutive days during the period from December 28 through January 31. The revolving credit facility contains certain restrictive covenants, which,affect, among others, our ability to incur liens or incur additionalindebtedness, sell assets or merge or consolidate with any other entity. Unlessborrowings and letters of credit exceed 82.5% of the maximum amounts availableunder the revolving credit facility or an event of default exists, the Companydoes not have to comply with any financial covenants. Should such an eventoccur, the Company is required to comply with a consolidated fixed chargecoverage ratio of 1:1.  As of December 31,2008, we were in compliance with all covenants.

 

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At December 31,2008, we had $2.0 million of outstanding loans under the revolving creditfacility, $12.8 million of outstanding letters of credit and availability of$30.2 million under the revolving credit facility as we had entered the cleandown period discussed above.  As of January 27, 2009, we had $18.0million of outstanding loans under the revolving credit facility, $10.1 millionof outstanding letters of credit and availability of $102.5 million under therevolving credit facility after the close of the clean down period.  We incur commitment fees of up to 0.75% onthe unused portion of the revolving credit facility. Any borrowing under therevolving credit facility incurs interest at LIBOR or the prime rate, dependingon the type of borrowing, plus an applicable margin. These rates are increasedor reduced as our average daily availability changes.   The weightedaverage interest rate at December 31, 2008 was 7.13%.

 

7.    Income Taxes -Tuesday Morning Corporation (the “Company”) or one of its subsidiaries filesincome tax returns in the U.S. federal jurisdiction, and various statejurisdictions.  With a few exceptions, Tuesday Morning Corporation isgenerally no longer subject to U.S. state and local income tax examinations bytax authorities for years before 1999.  The Internal Revenue Service (“IRS”)has concluded an examination of the Company for years ending before 2005.

 

As of the end of thesecond quarter of fiscal year 2009, the Company’s annual effective tax ratecould not be reliably estimated as a result of the difficulty in forecastingthird and fourth quarter profits or loss. Therefore, the effective tax rate for the six-month period ended December 31,2008, was utilized to determine the Company’s tax provision.  The effective tax rate is lower in the sixmonths ended December 31, 2008 as compared to the six months ended December 31,2007 primarily due to a reduction in state income taxes.

 

8.    Cash and CashEquivalents — Credit card receivables of $3.7 million and $8.1 million at December 31,2008 and 2007, respectively, from MasterCard, Visa, Discover and AmericanExpress, and all highly liquid investments with an original maturity date ofthree months or less are considered to be cash equivalents.

 

9.    RecentAccounting Pronouncements — In June 2008, the Financial AccountingStandards Board (“FASB”) issued a staff position on Emerging Issues Task Force03-6-1 “Determining Whether Instruments Granted in Share-Based PaymentTransactions are Participating Securities.”  The FSP addresses whetherinstruments granted in share-based payment transactions are participatingsecurities prior to vesting and, therefore, need to be included in the earningsallocation in computing earnings per share (EPS) under the two class methoddescribed in paragraphs 60 and 61 of FASB Statement No. 128, “Earnings perShare.”  The FSP is effective for financial statements issued for fiscalyears beginning after December 15, 2008 and interim periods within thoseyears.  Early adoption of this FSP is not permitted.  The Company iscurrently evaluating the impact of the adoption of this FSP on its consolidatedfinancial statements.

 

In March of 2008,the FASB adopted Statement of Financial Accounting Standards (SFAS) No. 161,*Disclosures about Derivative Instruments and HedgingActivities.*   This statement requires enhanced disclosuresabout an entity’s derivative and hedging activities.  The SFAS No. 161is effective for financial statements issued for fiscal years and interimperiods beginning after November 15, 2008.  The Company is currentlyevaluating the impact of the adoption of SFAS No. 161 on its consolidatedfinancial statements.

 

In December 2007,the FASB adopted Statement of Financial Accounting Standards (SFAS) No. 141(revised 2007), *Business Combinations*.SFAS 141R replaces SFAS No. 141, *BusinessCombinations*. The statement retains the purchase method ofaccounting used in business combinations, but replaces SFAS 141 by establishingprinciples and requirements for the recognition and measurement of assets,liabilities and goodwill, including the requirement that most transaction costsand restructuring costs be expensed. In addition, the statement requiresdisclosures to enable users to evaluate the nature and financial effects of thebusiness combination. SFAS 141R is effective for business combinations forwhich the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008. We will adoptSFAS 141R on February 1, 2009 for acquisitions on or after this date.

 

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**Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

The following discussionshould be read in conjunction with our unaudited Consolidated FinancialStatements and the notes thereto included in Item 1 of this Quarterly Report onForm 10-Q.

 

**Introduction**

 

We operated 860 discountretail stores in 45 states as of December 31, 2008.  We sell closeouthome furnishings, housewares, gifts and related items, which we purchase atbelow wholesale prices.  Our stores operate during periodic “sales events”that occur in each month except January and July.  We are generallyclosed during the first two weeks of January and July, which traditionallyhave been weaker months for retailers.  We purchase first quality, brandname merchandise at closeout prices and sell it at prices significantly belowthose generally charged by department stores and specialty and catalogretailers. We do not sell seconds, irregulars, refurbished or factory rejects.

 

**BusinessOverview**

 

The retail homefurnishings industry has been negatively impacted by increased supply andcompetition within an already highly competitive promotional environment, atrend we believe is likely to continue in the near term and potentially longer.As a closeout retailer of home furnishings, we currently compete against a diversegroup of retailers, including department and discount stores, specialty ande-commerce retailers and mass merchants, which sell, among other products, homefurnishing products similar and often identical to those we sell. We alsocompete in particular markets with a substantial number of retailers thatspecialize in one or more types of home furnishing and houseware products thatwe sell. Many of these competitors have substantially greaterfinancial resources than we do. Our competitors’ greater financialresources allow them to initiate and sustain aggressive price competition,initiate broader marketing campaigns that reach a larger customer base, fundongoing promotional events and communicate more frequently with existing andpotential customers.

 

In response to this trendin the retail home furnishings industry, we have been focused internally onimplementing various strategic initiatives that we believe will offset theimpact of this trend including, but not limited to, striving to provide a merchandiseassortment that evolves and adapts to the changing needs and preferences of theCompany’s customer base, continuing to review the individual contributions ofthe existing store base and making decisions about the future of individualstore locations, including whether to close or relocate them, seeking toimprove overall supply chain efficiency, including reviewing operationalpractices such as freight costs, vendor payment terms and distributionprocesses, and striving to improve the Company’s marketing plan by maximizingtraffic, increasing comparable store sales and expanding the current customerbase, while also maintaining cost efficiency.  Given the uncertaineconomic environment, we are closely monitoring our inventory purchases. We have also begun to more closely monitor and control our markdowns ofinventory to avoid marking down items that continue to sell through atreasonable rates.  As a result, markdowns combined with our reserve formarkdowns during the second quarter of 2009 were 5.2% of sales versus the prioryear quarter of 5.3% of sales.  We believe this strategy will contributeto overall margin by focusing our markdowns on inventory that is truly slowmoving and not marking down items on the basis of age in inventory alone, therebyallowing us to continue to exclude markdowns on opportunistic buys which aretoo large for us to sell through in one year.  As a result of thisstrategy, our inventory turnover could decrease.  Actual required markdowns could differ fromour current estimates based on future customer demand or economicconditions.  The effect of an additional1.0% markdown in the value of our inventory at December 31, 2008 wouldresult in a decline in gross profit and diluted earnings per share for thesecond quarter of fiscal 2009 of $2.6 million and $0.04, respectively. Under current economic conditions, those estimates can vary significantly fromthe actual results we may encounter.

 

Our ability tocontinuously attract buying opportunities for closeout merchandise and toanticipate consumer demand as closeout merchandise becomes available representsan uncertainty in our business. By their nature, specific closeout merchandiseitems are generally only available from manufacturers or vendors on anon-recurring basis. As a result, we do not have long-term contracts with ourvendors for supply, pricing or access to products, but make individual purchasedecisions, which are often for large quantities. Although we have many sourcesof merchandise and do not foresee any shortage of closeout merchandise in thenear future, we cannot assure that manufacturers or vendors will continue tomake desirable closeout merchandise available to us in quantities or on termsacceptable to us or that our buyers will continue to identify and takeadvantage of appropriate buying opportunities. Since this uncertainty is aby-product of our business, we expect it to be an ongoing concern.

 

The stability of ourearnings is also heavily influenced by macroeconomic factors. As the economyimproves or worsens our business is often similarly impacted. Macroeconomicfactors, such as the current conditions in the debt and housing markets, haveimpacted and will continue to impact our business by decreasing the disposableincome of our potential consumers. The decline in consumer confidence levelshas also had a negative impact on consumers’ ability and willingness to spenddiscretionary income. At this time, we view the direction of the economy to beuncertain, which does not allow us a high degree of visibility or certainty inpredicting our earnings.

 

Net sales for the secondquarter of fiscal 2008 were $272.7 million, a decrease of 11.7% compared to thesame period last year.  Comparable store sales for the quarter ended December 31,2008 decreased by 14.9% comprised of a 9.6% decrease in customer transactionsand a 5.3% decrease in average ticket.  Net income for the quarter was$12.7 million and diluted earnings per share were $0.31.

 

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For the six months ended December 31,2008, net sales were $446.1 million compared to $510.3 million for the sameperiod last year.  Comparable store sales for the six month period ended December 31,2008 decreased 15.8% compared to the same period last year.  This decreasewas comprised of an 11.4% decrease in customer transactions and a 4.4% decreasein average ticket.  Net income for the year-to-date period was $8.4million and diluted earnings per share were $0.20.

 

We continue to remainfocused on our long-term growth and profitability. The home furnishings andhigh-end decorative sectors of the U.S. economy continue to be challenged bythe highly competitive promotional environment and weakness in the housing anddebt markets.

 

We opened nine new storesduring the second quarter of fiscal 2009.  In addition, we relocated sixexisting stores and expanded one existing store.

 

**Resultsof Operations**

 

The following table setsforth certain financial information from our consolidated statements of incomeexpressed as a percentage of net sales.  Our business is highly seasonal,with a significant portion of our net sales and most of our operating incomegenerated in the quarter ending December 31, which includes the holidayseason. There can be no assurance that the trends in sales or operating resultswill continue in the future.

 
| ** **                                       | ** ** | **Three Months Ended  December 31** | ** ** | **Six Months Ended  December 31** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                           | ** ** | **2007**                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net sales                                        |       | 100.0                                              | %          | 100.0                                            | %          | 100.0 | % | 100.0 | % |
| Cost of sales                                    |       | 62.9                                               |       | 62.8                                             |       | 63.0 |   | 62.6 |   |
| Gross profit                                     |       | 37.1                                               |       | 37.2                                             |       | 37.0 |   | 37.4 |   |
| Selling, general  and administrative expense     |       | 29.5                                               |       | 26.1                                             |       | 33.9 |   | 30.1 |   |
| Operating income                                 |       | 7.6                                                |       | 11.1                                             |       | 3.1 |   | 7.3 |   |
| Net interest  expense and other income (expense) |       | (0.2                                               | )          | (0.4                                             | )          | (0.2 | ) | (0.4 | ) |
| Income before  income taxes                      |       | 7.4                                                |       | 10.7                                             |       | 2.9 |   | 6.9 |   |
| Income tax  expense                              |       | 2.7                                                |       | 4.0                                              |       | 1.0 |   | 2.6 |   |
|                                             |       |                                               |       |                                             |       |   |   |   |   |
| Net income                                       |       | 4.7                                                | %          | 6.7                                              | %          | 1.9 | % | 4.3 | % |

 

**ThreeMonths Ended December 31, 2008**

**Comparedto the Three Months Ended December 31, 2007**

 

During the second fiscalquarter of 2009, net sales decreased to $272.7 million from $308.7 million, adecrease of $36.0 million or 11.7% compared to the quarter ended December 31,2007. The decrease in second quarter sales is primarily due to the 14.9%decrease in comparable store sales.  The decrease in comparable sales forthe second quarter of fiscal 2009 was comprised of a 9.6% decrease in thenumber of transactions and a 5.3% decrease in the average transactionamount.  Average store sales for the second fiscal quarter of 2009decreased 15.3% when compared to the same prior year quarter.  Comparablestore sales and sales per store decreased primarily due to lower trafficlevels.  Management believes traffic levels are lower due to a number offactors, including the economic pressures impacting the discretionary income ofconsumers, an increase in supply of home furnishing products, a weakness in thehousing market, and the competitive promotional environment of the homefurnishings retail sector.

 

Gross profit decreased$14.0 million, or 12.2%, to $100.9 million for the three months ended December 31,2008 as compared to the same quarter last year of $114.9 million, primarily dueto a deleveraging of distribution costs on a decline in comparable store sales.Our gross profit percentage decreased from 37.2% to 37.1% in the second fiscalquarter of fiscal 2009. This decrease of 0.1% in gross profit percentage isprimarily due to the deleveraging of distribution expenses of 0.5% caused by areduction in comparable store sales which was offset by decreases in shrink,cost of product, and markdowns of 0.1%, respectively.

 

Selling, general andadministrative expenses decreased $0.3 million, or 0.4%, to $80.3 million inthe three months ended December 31, 2008 from $80.7 million in the samequarter last year.  The decrease was attributable to a $1.5 millionincrease in rent for new store locations offset by savings in advertising of$0.7 million, bank charges of $0.5 million, and insurance costs of $0.5million.  As a percentage of net sales, these selling, general andadministrative expenses increased 3.4% to 29.5% in the second fiscal quarter of2009 from 26.1% in the same quarter last year. The increased percentage is primarily due to the reduced expenseleveraging given our negative comparable store sales.  Selling, generaland administrative expenses per average store was $93.9 thousand in thequarter ended December 31, 2008 compared to $98.1 thousand in thesame quarter last year, a decrease of 4.4%.

 

The income tax provisionfor the three month period ended December 31, 2008 and 2007 was $7.3million and $12.6 million, respectively, reflecting an effective tax rate of36.6% and 38.1%, respectively.  The effective tax rate is lower in thesecond quarter of fiscal 2009 as compared to the same quarter last yearprimarily due to a reduction in state income taxes.

 

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**SixMonths Ended December 31, 2008**

**Comparedto the Six Months Ended December 31, 2007**

 

During the six monthsended December 31, 2008, net sales decreased to $446.1 million from $510.3million, a decrease of $64.7 million or 12.7% compared to the six month periodended December 31, 2007. The decrease in sales for the first six months offiscal 2009 is primarily due to the 15.8% decrease in comparable store sales.The decrease in comparable sales for the first six months of fiscal 2009 wascomprised of an 11.4% decrease in the number of transactions and a 4.4%decrease in the average transaction amount.  Total average store sales forthe first six months of fiscal 2009 decreased 15.8% when compared to the sameprior year period.  Comparable store sales and sales per store decreasedprimarily due to lower traffic levels.  Management believes traffic levelsare lower due to a number of factors, including the economic pressuresimpacting the discretionary income of consumers, an increase in supply of homefurnishing products, a weakness in the housing market, and the competitivepromotional environment of the home furnishings retail sector.

 

Gross profit decreased$25.6 million, or 13.4%, to $165.1 million for the six months ended December 31,2008 as compared to the same six month period last year of $190.6 million,primarily due to a deleveraging of distribution costs on a decline incomparable store sales.  In the six month period ended December 31,2008, our gross profit percentage decreased to 37.0% from 37.3% in the sameperiod last year.  This 0.3% decrease in gross profit margin was primarilydue to the deleveraging of distribution expenses of 0.5% caused by a reductionin comparable store sales which was offset by a decrease of 0.2% in markdowns.

 

Selling, general andadministrative expenses during the six months ended December 31, 2008decreased $2.0 million, or 1.3%, to $151.2 million from $153.2 million duringthe six months ended December 31, 2007.  The decrease was attributableto a $3.0 million increase in rent for new stores offset by a $1.6 milliondecrease in advertising, a $1.0 million decrease in bank charges, a $0.7million decrease in insurance, a $0.7 million decrease in supplies usage, and a$0.6 million decrease in stock compensation in the six months ended December 31,2008 compared to the same period of 2007.  As a percentage of net sales,these expenses increased 3.8% to 33.9% in the first six months of fiscal 2009from 30.1% in the same period last year.  The increased percentage isprimarily due to the reduced expense leveraging given our negative comparablestore sales.  Selling, general and administrative expenses per averagestore was $177.8 thousand for the six months ended December 31, 2008compared to $186.6 thousand in the same period last year, a decrease of4.8%.

 

The income tax provisionfor the six month periods ended December 31, 2008 and 2007 was $4.6million and $13.3 million, respectively, reflecting an effective tax rate of35.1% and 38.1%, respectively.  The effective tax rate is lower in the sixmonths ended December 31, 2008 as compared to the six months ended December 31,2007 primarily due to a reduction in state income taxes.

 

**Liquidityand Capital Resources**

 

We have financed ouroperations with funds generated from operating activities and borrowings underour revolving credit facility.  Our borrowings have historically peaked inthe quarter ended September 30 as we build inventory levels prior to theholiday selling season.  Given the seasonality of our business, the amountof borrowings under our revolving credit facility may fluctuate materiallydepending on various factors, including the time of year, our needs and theopportunity to acquire merchandise inventory.  We have no off-balancesheet arrangements or transactions with unconsolidated, limited purpose orvariable interest entities, nor do we have material transactions or commitmentsinvolving related persons or entities.

 

Net cash flows providedby operating activities for the six months ended December 31, 2008 was$5.5 million, primarily due to net income of $8.4 million along withadjustments for non cash charges of $8.4 million for depreciation, an increasein income taxes payable of $4.3 million and an increase in accrued liabilitiesof $3.5 million offset by an increase in inventory of $19.9million.   The increase in inventory was primarily due to lower salesvolumes and an increase in inventory purchases. There has been no material change in our payment policy to vendors. The increase in income taxes payable is the result of higher pretax earnings inthe six month period ended December 31, 2008 compared to the six monthperiod ended June 30, 2008.  Theincrease in accrued liabilities was due to the timing of payments of thoseliabilities.

 

Net cash used ininvesting activities of $7.0 million for the six months ended December 31,2008 was primarily a result of capital expenditures that relate to opening newstores and store relocations in addition to the purchase of warehouse equipmentand corporate hardware and software.  We expect to spend approximately$3.0 million for additional capital expenditures during the remainder of fiscal2009, which will include the opening of new stores, the expansion, relocationand enhancement of selected existing stores and purchases of equipment for ourdistribution center and corporate office.

 

Net cash used infinancing activities for the six months ended December 31, 2008 of $1.3million was primarily due to repayments under the revolving credit facility of$153.9 million net of borrowings of $147.5 million.

 

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Revolving credit facility— On December 15, 2008, we entered into a new credit agreement providingfor an asset-based, five-year senior secured revolving credit facility (the “Revolving CreditFacility”) in the amount of up to $150.0 million.  On January 28, 2009, we entered into anamendment to increase the amount from $150.0 million to $180.0 million. The revolving credit facility may be increased by up to $70.0 million, not toexceed an aggregate total commitment of $250.0 million.  Our indebtedness under the credit facility issecured by a lien on substantially all of our assets.  The revolvingcredit facility contains, among other things, a “clean down” provisionrequirement that the sum of the aggregate principal amount of the outstandingloans and undrawn letters of credit may not exceed $45.0 million for 30consecutive days during the period from December 28 through January 31. The revolving credit facility contains certain restrictive covenants, whichaffect, among others, our ability to incur liens or incur additionalindebtedness, sell assets or merge or consolidate with any other entity. Unlessborrowings and letters of credit exceed 82.5% of the maximum amounts availableunder the revolving credit facility or an event of default exists, the Companydoes not have to comply with any financial covenants. Should such an eventoccur, the Company is required to comply with a consolidated fixed chargecoverage ratio of 1:1.  As of December 31,2008, we were in compliance with all covenants.

 

At December 31,2008, we had $2.0 million of outstanding loans under the revolving creditfacility, $12.8 million of outstanding letters of credit and availability of$30.2 million under the revolving credit facility as we had entered the cleandown period discussed above.  As of January 28, 2009, we had $18.0million of outstanding loans under the revolving credit facility, $10.1 millionof outstanding letters of credit and availability of $102.5 million under therevolving credit facility after the close of the clean down period.  We incur commitment fees of up to 0.75% onthe unused portion of the revolving credit facility. Any borrowing under therevolving credit facility incurs interest at LIBOR or the prime rate, dependingon the type of borrowing, plus an applicable margin. These rates are increasedor reduced as our average daily availability changes.   The weightedaverage interest rate at December 31, 2008 was 7.13%.

 

**Updateto Contractual Obligations**

 

To supplement thecontractual obligations included on Form 10-K for the fiscal year ended June 30,2008, we have recalculated our obligations under the new revolving creditfacility (in thousands):

 
| ** **                               | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual  Obligations**             | ** ** | **Total**                                 | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **> 5 Years** | ** ** |
| Non-cancelable  operating leases         |       | $                                         | 186,312    |   | $ | 59,479 |   | $ | 83,405 |   | $ | 37,019 |   | $ | 6,409 |   |
| Revolving credit  facility               |       | 2,030                                     |       | — |   | — |   | 2,030 |   | — |   |
| Interest on  revolving credit facility   |       | 725                                       |       | 145 |   | 290 |   | 290 |   | — |   |
| Leased  maintenance, insurance and taxes |       | 12,663                                    |       | 4,042 |   | 5,669 |   | 2,516 |   | 436 |   |
|                                          |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Wedo not consider merchandise purchase orders to be contractual obligations dueto designated cancellation dates on the face of the purchase order.Contractually required payments for maintenance, insurance and taxes on ourleased properties are estimated above as a percentage of rent based onhistorical trends. These amounts can vary based on multiple factors includinginflation, macroeconomic conditions, various local tax rates and appraisedvalues of our rental properties. Interest paid on our revolving credit facilityis calculated at a 7.13% rate, which is the actual rate incurred for the secondquarter of  2009, and will vary asadditional borrowings are made or paid off early and will also fluctuate withchanges in applicable interest rates. We have no capital lease obligations at December 31,2008.

 

**StoreOpenings/Closings**

 
| ** **                          | ** ** | **Six Months  Ended  December 31,  2008** | ** ** | **Six Months  Ended  December 31,  2007** | ** ** | **Six Months  Ended  June 30,  2008** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------------------------|------------|
|                                |       |                                                |       |                                                |       |                                            |       |
| Stores open at  beginning of period |       | 842                                                 |       | 810                                                 |       | 831                                             |       |
| Stores opened  during the period    |       | 21                                                  |       | 24                                                  |       | 24                                              |       |
| Stores closed  during the period    |       | (3                                                  | )          | (3                                                  | )          | (13                                             | )          |
| Stores open at  end of period       |       | 860                                                 |       | 831                                                 |       | 842                                             |       |

 

**Item3. Quantitative and Qualitative Disclosures About Market Risk**

 

We are exposed to variousmarket risks, including changes in foreign currency exchange rates and interestrates. Market risk is the potential loss arising from adverse changes in marketprices and rates, such as foreign currency exchange and interest rates. Basedon our market risk sensitive instruments outstanding as of December 31,2008, we have determined that there was no material market risk exposure to ourconsolidated financial position, results of operations or cash flows as of suchdate. Our market risk is discussed in more detail in our Annual Report on Form 10-Kfor the fiscal year ended June 30, 2008. We do not enter into derivativesor other financial instruments for trading or speculative purposes. There havebeen no significant changes in the foreign currency exchange rate or interestrate market risks since June 30, 2008.

 

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**Item4. Controls and Procedures**

 

**DisclosureControls and Procedures**

 

Based on our management’sevaluation (with participation of our principal executive officer and ourprincipal financial officer), our principal executive officer and our principalfinancial officer have concluded that our disclosure controls and procedures(as defined in Rule 13a-15(e) or Rule 15d-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) wereeffective as of December 31, 2008 to ensure that information required tobe disclosed by us in this Quarterly Report on Form 10-Q was (1) recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms and (2) accumulatedand communicated to our management, including our principal executive andprincipal financial officers, to allow timely decisions regarding requireddisclosure.

 

A control system, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Becauseof inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues, if any, within a companyhave been detected. Accordingly, our disclosure controls and procedures aredesigned to provide reasonable, not absolute, assurance that the objectives ofour disclosure control system are met and, as set forth above, our chiefexecutive officer and chief financial officer have concluded, based on theirevaluation as of the end of the period covered by this report, that ourdisclosure controls and procedures were effective to provide reasonable assurancethat the objectives of our disclosure control system were met.

 

**Changes in Internal Control Over Financial Reporting**

 

There were no changes inour internal control over financial reporting that occurred during the quarterended December 31, 2008 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

**PART II — OTHER INFORMATION**

 

**Item1. 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 sought tocertify a statewide class made up of some of our current and former employees,which they claim are owed compensation for overtime wages, penalties and interest.The plaintiffs also sought attorney’s fees and costs. In October 2003, weentered into a settlement agreement with a sub-class of these plaintiffsconsisting of managers-in-training and management trainees which was paid in November 2005with no material impact to our financial statements.  In August 2008,our motion for de-certification of the class of remaining plaintiffs wasgranted, thereby dismissing their class action claim.  The plaintiffs haveappealed this ruling and some may pursue their claims individually.

 

A similar lawsuit, whichalso alleges claims concerning meal and rest periods, was filed in OrangeCounty, California in 2004, by managers, managers-in-training and assistantmanagers, and an amended complaint was filed in January 2007. In September 2008,the plaintiffs abandoned their class action claim and have elected to pursuetheir claims under California’s Private Attorney General Act.  This matter is set for trial in September,2009.  A companion lawsuit alleging thesame claims was filed on December 26, 2008 on behalf of approximatelytwenty additional individual plaintiffs. This lawsuit includes a claim under California’s Private AttorneyGeneral Act.  The companion lawsuit isstill in the initial stages of litigation.  We do not expect either ofthese complaints to have a material impact to our financial statements.

 

In December 2008, aclass action lawsuit was filed by hourly, non-exempt employees in the SuperiorCourt of California in and for the County of Los Angeles, alleging claimscovering meal and rest period violations. This case is still in the initial stages of litigation and discovery hasnot yet begun.

 

We intend to vigorouslydefend all pending actions. We do not believe these or any other legalproceedings pending or threatened against us would have a material adverseeffect on our financial condition or results of operations.

 

**Item1A. Risk Factors**

 

There have been nomaterial changes from our risk factors previously disclosed in “Item 1A. RiskFactors” of our Form 10-K for the year ended June 30, 2008.

 

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**Item4. Submission of Matters to a Vote of Security Holders**

 

At the Annual Meeting ofStockholders held on November 14, 2008, the following proposals weresubmitted to stockholders with the following results:

 

1.                                   Electionof seven directors to serve until their terms expire at the next annual meetingof stockholders, or the earlier of their death, resignation or removal

 
| ** **                     | ** ** | **Number of Shares** | ** ** |
|--------------------------------|------------|--------------------------------|------------|
| ** **                     | ** ** | **For**                        | ** ** | **Withheld** | ** ** |
|                           |       |                           |       |   |   |
| Bruce A.  Quinnell             |       | 34,482,736                     |       | 5,902,735 |   |
| Kathleen Mason                 |       | 34,592,214                     |       | 5,793,257 |   |
| Benjamin D.  Chereskin         |       | 32,579,489                     |       | 7,805,982 |   |
| Robin P. Selati                |       | 29,514,783                     |       | 10,870,688 |   |
| William J.  Hunckler, III |       | 32,784,217                     |       | 7,601,254 |   |
| David B. Green                 |       | 39,984,822                     |       | 400,649 |   |
| Starlette  Johnson             |       | 39,912,082                     |       | 473,389 |   |

 

2.                                   Approvalof the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan

 
| ** ** | ** ** | **Number of Shares** | ** ** |
|------------|------------|--------------------------------|------------|
|       |       |                           |       |
| For        |       | 22,199,803                     |       |
|       |       |                           |       |
| Against    |       | 10,503,707                     |       |
|       |       |                           |       |
| Abstain    |       | 2,468,494                      |       |

 

3.                                   Approvalof the material terms of the performance goals for performance stock andperformance unit awards under the Tuesday Morning Corporation 2008 Long-TermEquity Incentive Plan

 
| ** ** | ** ** | **Number of Shares** | ** ** |
|------------|------------|--------------------------------|------------|
|       |       |                           |       |
| For        |       | 21,780,017                     |       |
|       |       |                           |       |
| Against    |       | 10,920,928                     |       |
|       |       |                           |       |
| Abstain    |       | 2,471,059                      |       |

 

4.                                   Ratificationof the selection of Ernst & Young LLP as our independent registeredpublic accounting firm for the fiscal year ending June 30, 2009

 
| ** ** | ** ** | **Number of Shares** | ** ** |
|------------|------------|--------------------------------|------------|
|       |       |                           |       |
| For        |       | 39,209,349                     |       |
|       |       |                           |       |
| Against    |       | 1,157,492                      |       |
|       |       |                           |       |
| Abstain    |       | 18,630                         |       |

 

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**Item5. Other Information**

 

*Amendmentto Kathleen Mason Employment Agreement*

 

OnJanuary 28, 2009, the Company and Kathleen Mason, the Company’s Presidentand Chief Executive Officer, entered into a first amendment (the “MasonAmendment Agreement”) to the Amended and Restated Employment Agreement, dated September 29,2008, by and between the Company and Ms. Mason (the “Mason EmploymentAgreement”).  Pursuant to the terms ofthe Mason Amendment Agreement, Ms. Mason will receive: (1) aspromptly as practicable, a restricted stock award under the 2008 Plan of364,078 shares of the Common Stock, which will be subject to forfeiturerestrictions that will lapse in equal installments on November 14, 2009,2010 and 2011 and (2) during the Employment Period (as defined in theMason Employment Agreement) cash in the amount of $500,000 per year on November 14,2009, 2010 and 2011 (together, (1) and (2) above are referred to asthe “Mason Amended Compensation”).  Ms. Masonwill receive the Mason Amended Compensation in lieu of the $1,500,000restricted stock award that Ms. Mason was to receive under the MasonEmployment Agreement.

 

Thedescription of the Mason Amendment Agreement set forth above does not purportto be complete and is qualified in its entirety by reference to the MasonAmendment Agreement filed as Exhibit 10.9 to this Quarterly Report on Form 10-Q,which is incorporated herein by reference.

 

*Amendmentto Michael Marchetti Employment Agreement*

 

Alsoon January 28, 2009, the Company and Michael Marchetti, the Company’sExecutive Vice President and Chief Operating Officer, entered into a firstamendment (the “Marchetti Amendment Agreement”) to the Employment Agreement,dated October 2, 2008, by and between the Company and Mr. Marchetti(the “Marchetti Employment Agreement”). Pursuant to the terms of the Marchetti Amendment Agreement, Mr. Marchettiwill receive (1) as promptly as practicable, a restricted stock awardunder the 2008 Plan of 145,631 shares of Common Stock, which will be subject toforfeiture restrictions that will lapse in equal installments on November 14,2009, 2010 and 2011 and (2) during the Employment Period (as defined inthe Marchetti Employment Agreement) cash in the amount of $200,000 per year on November 14,2009, 2010 and 2011 (together, (1) and (2) above are referred to asthe “Marchetti Amended Compensation”) .  Mr. Marchettiwill receive the Marchetti Amended Compensation in lieu of the $600,000restricted stock award that Mr. Marchetti was to receive under theMarchetti Employment Agreement.

 

Thedescription of the Marchetti Amendment Agreement set forth above does notpurport to be complete and is qualified in its entirety by reference to theMarchetti Amendment Agreement filed as Exhibit 10.10 to this QuarterlyReport on Form 10-Q, which is incorporated herein by reference.

 

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**Item6. Exhibits**

 
| **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 10-Q as filed with the Commission on May 2, 2005)                                                                                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.2                  |       | Amended and Restated  By-laws of the Company dated December 14, 2006 (incorporated by  reference to Exhibit 3.1 to the Company’s Form 8-K as filed with  the Commission on December 20, 2006)                                                                                                                                                                                                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.2                 |       | Amended and Restated  Employment Agreement, dated September 29, 2008, between the Company and  Kathleen Mason (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.3                 |       | Employment Agreement  dated October 2, 2008, between the Company and Michael J. Marchetti  (incorporated by reference to Exhibit 10.2 to the Company’s  Form 8-K as filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.4                 |       | Form of  Performance Stock Award Agreement under the Tuesday Morning Corporation 2004  Long-Term Equity Incentive Plan (incorporated by reference to  Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.5                 |       | Form of Restricted  Stock Award Agreement under the Tuesday Morning Corporation 2004 Long-Term  Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the  Company’s Form 8-K filed with the Commission on October 10, 2008)                                                                                                                                                                                                                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.6                 |       | Form of  Nonqualified Stock Option Agreement for Employees under the Tuesday Morning  Corporation 2004 Long-Term Incentive Plan (incorporated by reference to  Exhibit 10.3 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.7                 |       | Tuesday Morning  Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference  to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission  on November 19, 2008.)                                                                                                                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.8                 |       | Credit Agreement, dated  December 15, 2008, by and among the Company, Bank of America, N.A., as  administrative agent, Swing Line Lender, L/C Issuer, Banc of America  Securities LLC and Wells Fargo Retail Finance, LLC, as Joint Lead Arrangers  and Joint Bookrunners, Wells Fargo Retail Finance, LLC, as Syndication Agent,  and the several banks and other financial institutions or entities from time  to time parties thereto (incorporated by reference to Exhibit 10.1 to  the Company’s 8-K/A filed with the Commission on December 23, 2008) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.9                 |       | First Amendment to the  Amended and Restated Employment Agreement, dated January 28, 2009, by  and between Tuesday Morning Corporation and Kathleen Mason**                                                                                                                                                                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.10                |       | First Amendment to the  Employment Agreement, dated January 28, 2009, by and between Tuesday  Morning Corporation and Michael Marchetti**                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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*                                                                                                                                                                                                                                                                                                                                                                                                   |

 

----

| *      |   | The certifications  attached hereto as Exhibit 32.1 and Exhibit 32.2 are furnished with  this Quarterly Report on Form 10-Q and shall not be deemed “filed” by  the Company for purposes of Section 18 of the Securities Exchange Act of  1934, as amended. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                      |
| **     |   | Filed herewith                                                                                                                                                                                                                                                                            |

 

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SIGNATURE

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                                                            | **TUESDAY  MORNING CORPORATION** |
|-----------------------------------------------------------------|----------------------------------|
| ** **                                                      | (Registrant)                     |   |
|                                                            |                             |
|                                                            |                             |
| DATE:       January 30, 2009 | By:                              | /s/ Stephanie Bowman |
|                                                            |                             | Stephanie Bowman,  Executive Vice President, Chief Financial Officer |
|                                                                 |                                  |  |  |

 

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**EXHIBITINDEX**

 
| **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 10-Q as filed with the Commission on May 2, 2005)                                                                                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.2                  |       | Amended and Restated  By-laws of the Company dated December 14, 2006 (incorporated by  reference to Exhibit 3.1 to the Company’s Form 8-K as filed with  the Commission on December 20, 2006)                                                                                                                                                                                                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.2                 |       | Amended and Restated  Employment Agreement, dated September 29, 2008, between the Company and  Kathleen Mason (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.3                 |       | Employment Agreement  dated October 2, 2008, between the Company and Michael J. Marchetti  (incorporated by reference to Exhibit 10.2 to the Company’s  Form 8-K as filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.4                 |       | Form of  Performance Stock Award Agreement under the Tuesday Morning Corporation 2004  Long-Term Equity Incentive Plan (incorporated by reference to  Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.5                 |       | Form of Restricted  Stock Award Agreement under the Tuesday Morning Corporation 2004 Long-Term  Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the  Company’s Form 8-K filed with the Commission on October 10, 2008)                                                                                                                                                                                                                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.6                 |       | Form of  Nonqualified Stock Option Agreement for Employees under the Tuesday Morning  Corporation 2004 Long-Term Incentive Plan (incorporated by reference to  Exhibit 10.3 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.7                 |       | Tuesday Morning  Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference  to Exhibit 10.1 to the Company’s Form 8Kfiled with the Commission  on November 19, 2008.)                                                                                                                                                                                                                                                                                                                                                                     |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.8                 |       | Credit Agreement, dated  December 15, 2008, by and among the Company, Bank of America, N.A., as  administrative agent, Swing Line Lender, L/C Issuer, Banc of America  Securities LLC and Wells Fargo Retail Finance, LLC, as Joint Lead Arrangers  and Joint Bookrunners, Wells Fargo Retail Finance, LLC, as Syndication Agent,  and the several banks and other financial institutions or entities from time  to time parties thereto (incorporated by reference to Exhibit 10.1 to  the Company’s 8-K/A filed with the Commission on December 23, 2008) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.9                 |       | First Amendment to the  Amended and Restated Employment Agreement, dated January 28, 2009, by  and between Tuesday Morning Corporation and Kathleen Mason**                                                                                                                                                                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.10                |       | First Amendment to the  Employment Agreement, dated January 28, 2009, by and between Tuesday  Morning Corporation and Michael Marchetti**                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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*                                                                                                                                                                                                                                                                                                                                                                                                   |

 

----

| *      |   | The certifications  attached hereto as Exhibit 32.1 and Exhibit 32.2 are furnished with  this Quarterly Report on Form 10-Q and shall not be deemed “filed” by  the Company for purposes of Section 18 of the Securities Exchange Act of  1934, as amended. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                      |
| **     |   | Filed herewith                                                                                                                                                                                                                                                                            |

 

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