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

**Washington, D. C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

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

 

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

 

**OR**

 

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

 

**FOR THE TRANSITION PERIODFROM           TO           **

 

**Commission file number 0-19658**

 

**TUESDAY MORNING CORPORATION**

(Exact Name of Registrant as Specified in itsCharter)

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

 

**6250 LBJFreewayDallas, Texas 75240**

(Address, including zipcode, of principal executive offices)

 

**(972) 387-3562**

(Registrant’s telephonenumber, including area code)

 

**Not applicable**

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

 

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

Yes  ý  No  o

 

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

Yes  ý  No  o

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o  No  ý

 

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

 
| **Class**                                | ** ** | **Outstanding  at October 28, 2005** |
|------------------------------------------|------------|-------------------------------------------|
| Common Stock, par value  $0.01 per share |       | 41,369,447                                |

 

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**Forward-Looking Statements**

 

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

 

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

 

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

 

•                  *conditions affecting consumer spending, such as high gasoline pricesand household utility costs;*

 

•                  *general regional and national economic conditions;*

 

•                  *inclement weather, such as the pattern of hurricanes that affected theSoutheast U.S. in August and September 2004 and again in September 2005;*

 

•                  *changes in our merchandise mix;*

 

•                  *timing and type of sales events, promotional activities and otheradvertising;*

 

•                  *uncertainties arising out of world events;*

 

•                  *increased or new competition;*

 

•                  *our ability to continuously attract buying opportunities for closeoutmerchandise and anticipate consumer demand as closeout merchandise becomesavailable;*

 

•                  *loss of, or disruption in, our centralized distribution center;*

 

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

 

•                  *our dependence on external funding sources;*

 

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

 

•                  *environmental regulations;*

 

•                  *seasonal and quarterly fluctuations; and*

 

•                  *fluctuations in our comparable store results.*

 

*Theforward-looking statements made in this Form 10-Q relate only to events as ofthe date on which the statements were made. 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,” “we,” “us” and “our” as used in this Quarterly Reporton Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries.*

 

2

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

 

3

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

 

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

 

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

 
| ** **                                                                                                                                                                                   | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                   |       |                         |       |                        |       |
| Current assets:                                                                                                                                                                              |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                    |       | $                            | 6,146      |                        | $          | 45,067 |   |
| Inventories                                                                                                                                                                                  |       | 293,358                      |       | 189,132                     |       |
| Prepaid expenses and other current assets                                                                                                                                                    |       | 8,176                        |       | 5,169                       |       |
| Deferred income taxes                                                                                                                                                                        |       | 5,991                        |       | 5,991                       |       |
| Total current assets                                                                                                                                                                         |       | 313,671                      |       | 245,359                     |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Property and equipment, net                                                                                                                                                                  |       | 88,610                       |       | 86,332                      |       |
| Deferred financing costs                                                                                                                                                                     |       | 728                          |       | 877                         |       |
| Other assets                                                                                                                                                                                 |       | 4,744                        |       | 3,552                       |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Total Assets                                                                                                                                                                                 |       | $                            | 407,753    |                        | $          | 336,120 |   |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                               |       |                         |       |                        |       |
| Current liabilities:                                                                                                                                                                         |       |                         |       |                        |       |
| Accounts payable                                                                                                                                                                             |       | $                            | 102,939    |                        | $          | 72,722 |   |
| Accrued liabilities                                                                                                                                                                          |       | 35,036                       |       | 39,549                      |       |
| Income taxes payable                                                                                                                                                                         |       | 8,286                        |       | 17,483                      |       |
| Total current liabilities                                                                                                                                                                    |       | 146,261                      |       | 129,754                     |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Revolving credit facility                                                                                                                                                                    |       | 49,500                       |       | —                      |       |
| Deferred rent                                                                                                                                                                                |       | 4,481                        |       | 165                         |       |
| Deferred income taxes                                                                                                                                                                        |       | 9,051                        |       | 9,051                       |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Total Liabilities                                                                                                                                                                            |       | 209,293                      |       | 138,970                     |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Commitments and contingencies                                                                                                                                                                |       |                         |       |                        |       |
| Stockholders’ equity:                                                                                                                                                                   |       |                         |       |                        |       |
| Preferred stock, par value $.01 per share,  authorized 10,000,000 shares, none issued or outstanding                                                                                         |       | —                       |       | —                      |       |
| Common stock, par value $.01 per share,  authorized 100,000,000 shares; 41,365,947 shares issued and outstanding at September 30,  2005 and 41,101,965 shares at December 31, 2004 |       | 414                          |       | 411                         |       |
| Additional paid-in capital                                                                                                                                                                   |       | 189,857                      |       | 188,969                     |       |
| Retained earnings                                                                                                                                                                            |       | 8,213                        |       | 7,745                       |       |
| Accumulated other comprehensive income  (loss)                                                                                                                                               |       | (24                          | )          | 25                          |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Total Stockholders’ Equity                                                                                                                                                              |       | 198,460                      |       | 197,150                     |       |
|                                                                                                                                                                                         |       |                         |       |                        |       |
| Total Liabilities and Stockholders’ Equity                                                                                                                                              |       | $                            | 407,753    |                        | $          | 336,120 |   |

 

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

 

4

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

 
| ** **                                    | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                          |       |                                      |       |                                     |       |   |   |   |   |
| Net sales                                     |       | $                                         | 192,276    |                                     | $          | 186,148 |   | $ | 596,626 |   | $ | 565,442 |   |
| Cost of sales                                 |       | 117,577                                   |       | 117,525                                  |       | 367,951 |   | 354,417 |   |
| Gross profit                                  |       | 74,699                                    |       | 68,623                                   |       | 228,675 |   | 211,025 |   |
| Selling, general and administrative  expenses |       | 61,387                                    |       | 55,700                                   |       | 188,181 |   | 168,068 |   |
| Operating income                              |       | 13,312                                    |       | 12,923                                   |       | 40,494 |   | 42,957 |   |
| Other income (expense):                       |       |                                      |       |                                     |       |   |   |   |   |
| Interest income                               |       | —                                    |       | 1                                        |       | 98 |   | 8 |   |
| Interest expense                              |       | (553                                      | )          | (868                                     | )          | (922 | ) | (1,751 | ) |
| Other income                                  |       | 202                                       |       | 190                                      |       | 633 |   | 637 |   |
|                                          |       | (351                                      | )          | (677                                     | )          | (191 | )  | (1,106 | ) |
| Income before income taxes                    |       | 12,961                                    |       | 12,246                                   |       | 40,303 |   | 41,851 |   |
| Income tax expense                            |       | 4,748                                     |       | 4,724                                    |       | 14,894 |   | 16,131 |   |
|                                          |       |                                      |       |                                     |       |   |   |   |   |
| Net income                                    |       | $                                         | 8,213      |                                     | $          | 7,522 |   | $ | 25,409 |   | $ | 25,720 |   |
|                                          |       |                                      |       |                                     |       |   |   |   |   |
| **Earnings  Per Share**                       |       |                                      |       |                                     |       |   |   |   |   |
| Net income per common share:                  |       |                                      |       |                                     |       |   |   |   |   |
| Basic                                         |       | $                                         | 0.20       |                                     | $          | 0.18 |   | $ | 0.62 |   | $ | 0.63 |   |
| Diluted                                       |       | $                                         | 0.20       |                                     | $          | 0.18 |   | $ | 0.61 |   | $ | 0.62 |   |
| Weighted average number of common shares:     |       |                                      |       |                                     |       |   |   |   |   |
| Basic                                         |       | 41,352                                    |       | 41,061                                   |       | 41,229 |   | 41,029 |   |
| Diluted                                       |       | 41,872                                    |       | 41,771                                   |       | 41,768 |   | 41,743 |   |
|                                          |       |                                      |       |                                     |       |   |   |   |   |
| Dividends per common share                    |       | $                                         | —     |                                     | $          | — |   | $ | 0.65 |   | $ | — |   |

 

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

 

5

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

 
| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
|                                                                              |       |                                      |       |   |   |
| **Net cash  flows from operating activities:**                                    |       |                                      |       |   |   |
| Net income                                                                        |       | $                                         | 25,409     |   | $ | 25,720 |   |
| Adjustments to reconcile net income to net  cash used in operating activities:    |       |                                      |       |   |   |
| Depreciation and amortization                                                     |       | 10,713                                    |       | 8,289 |   |
| Amortization of financing fees                                                    |       | 128                                       |       | 399 |   |
| Other non-cash items                                                              |       | (4                                        | )          | 55 |   |
| Change in operating assets and liabilities:                                       |       |                                      |       |   |   |
| Inventories                                                                       |       | (104,226                                  | )          | (119,376 | ) |
| Prepaid and other assets                                                          |       | (4,178                                    | )          | (2,986 | ) |
| Accounts payable                                                                  |       | 30,217                                    |       | 20,053 |   |
| Accrued liabilities                                                               |       | (4,513                                    | )          | (1,429 | ) |
| Deferred rent                                                                     |       | 4,316                                     |       | — |   |
| Income taxes payable                                                              |       | (9,197                                    | )          | (8,380 | ) |
| Net cash used in operating activities                                             |       | (51,335                                   | )          | (77,655 | ) |
|                                                                              |       |                                      |       |   |   |
| **Net cash  flows from investing activities:**                                    |       |                                      |       |   |   |
| Capital expenditures                                                              |       | (12,991                                   | )          | (18,449 | ) |
| Net cash used in investing activities                                             |       | (12,991                                   | )          | (18,449 | ) |
|                                                                              |       |                                      |       |   |   |
| **Net cash  flows from financing activities:**                                    |       |                                      |       |   |   |
| Payment of dividends to common stockholders                                       |       | (26,854                                   | )          | — |   |
| Proceeds from revolving credit facility,  net                                     |       | 49,500                                    |       | 80,700 |   |
| Payment of financing fees                                                         |       | —                                    |       | (387 | ) |
| Proceeds from exercise of common stock options  and stock purchase plan purchases |       | 2,759                                     |       | 838 |   |
| Net cash provided by financing activities                                         |       | 25,405                                    |       | 81,151 |   |
| Net decrease in cash and cash equivalents                                         |       | (38,921                                   | )          | (14,953 | ) |
| Cash and cash equivalents, beginning of  period                                   |       | 45,067                                    |       | 23,536 |   |
| Cash and cash equivalents, end of period                                          |       | $                                         | 6,146      |   | $ | 8,583 |   |

 

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

 

6

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**Tuesday Morning CorporationNotes to Consolidated Financial Statements**

 

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

 

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

 

As a result of this adjustment, we recorded a non-cash,$3.9 million ($2.4 million, net of income tax or $0.06 per dilutedshare) cumulative charge to earnings during the first quarter of fiscal 2005.The adjustment did not impact historical or future net cash flows or the timingof the payments under related leases. We believe that the new lease accountingpolicies will not have a material effect on future diluted earnings per share.Prior years’ financial statements were not restated as the impact of this issuewas immaterial to previously reported results for any individual previousperiod.

 

3.               Comprehensive income - Comprehensive income is defined as net incomeplus the change in equity during a period from transactions and other events,excluding those resulting from investments by and distributions toshareholders. Total comprehensive income for the three month period ended September30, 2005 and 2004 was $8.3 million and $7.5 million, respectively and for the ninemonth period ended September 30, 2005 and 2004 was $25.4 million and $25.6million, respectively.

 

4.               Legal proceedings – During 2001 and 2002, wewere named as a defendant in three complaints filed in the Superior Court ofCalifornia in and for the County of Los Angeles. The plaintiffs are seeking tocertify a statewide class made up of some of our current and former employees,which they claim are owed compensation for overtime wages, penalties andinterest. The plaintiffs are also seeking attorney’s fees and costs. In October2003, we entered into a settlement agreement with a sub-class of theseplaintiffs consisting of manager-in-training and management trainees.  The settlement agreement is currently underappeal by one of the plaintiffs.

 

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

 

In June 2004, wewere named as a defendant in a complaint filed in the U.S. District Court,Central District of California. The plaintiff, Thomas Kinkade Company (f/k/a/Media Arts Group Inc.), is alleging copyright infringement and falseadvertisements on merchandise we sold in the second quarter of 2004. Thislawsuit is set for trial in November 2005.

 

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

 

7

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5.               Earningsper common share
| ** **                                                                                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands, except per share  data)**                                                         | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                               |       |                                       |       |                                      |       |   |   |   |   |
| **Basic  earnings per share:**                                                                     |       |                                       |       |                                      |       |   |   |   |   |
| Net income                                                                                         |       | $                                          | 8,213      |                                      | $          | 7,522 |   | $ | 25,409 |   | $ | 25,720 |   |
| Weighted average number of common shares  outstanding                                              |       | 41,352                                     |       | 41,061                                    |       | 41,229 |   | 41,029 |   |
| Net income per common share                                                                        |       | $                                          | 0.20       |                                      | $          | 0.18 |   | $ | 0.62 |   | $ | 0.63 |   |
|                                                                                               |       |                                       |       |                                      |       |   |   |   |   |
| **Diluted  earnings per share:**                                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Net income                                                                                         |       | $                                          | 8,213      |                                      | $          | 7,522 |   | $ | 25,409 |   | $ | 25,720 |   |
|                                                                                               |       |                                       |       |                                      |       |   |   |   |   |
| Dilutive effect of employee stock options                                                          |       | 520                                        |       | 710                                       |       | 539 |   | 714 |   |
| Weighted average number of common shares  outstanding                                              |       | 41,352                                     |       | 41,061                                    |       | 41,229 |   | 41,029 |   |
| Weighted average number of common shares  and diluted effect of outstanding employee stock options |       | 41,872                                     |       | 41,771                                    |       | 41,768 |   | 41,743 |   |
|                                                                                               |       |                                       |       |                                      |       |   |   |   |   |
| Net income per common share                                                                        |       | $                                          | 0.20       |                                      | $          | 0.18 |   | $ | 0.61 |   | $ | 0.62 |   |

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

At September 30, 2005, wehad $49.5 million outstanding under the revolving credit facility and hadavailability of $150.8 million.

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

The following tablerepresents the effect on net income and earnings per share if we had appliedthe fair value based method and recognition provisions of Statement ofFinancial Accounting Standards (SFAS) No. 123, “Accounting for Stock-BasedCompensation,” and our adoption on January 1, 2003 of Statement ofFinancial Accounting Standards No. 148, “Accounting for Stock-BasedCompensation Transition and Disclosure.” The pro forma effects of stock-based compensation on net income and netincome per common share are as follows:
| ** **                                                                                                          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| **(in thousands, except per share  data)**                                                                          | ** ** | **2005**                                  | ** ** | **2004**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income as reported                                                                                              |       | $                                         | 8,213      |                                     | $          | 7,522 |   | $ | 25,409 |   | $ | 25,720 |   |
| Less: Stock-based employee compensation  expense determined under the fair value method, net of related tax effects |       | 959                                       |       | 983                                      |       | 2,915 |   | 2,641 |   |
| Pro-forma net income                                                                                                |       | $                                         | 7,254      |                                     | $          | 6,539 |   | $ | 22,494 |   | $ | 23,079 |   |
|                                                                                                                |       |                                      |       |                                     |       |   |   |   |   |
| Net income per common share:                                                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Basic as reported                                                                                                   |       | $                                         | 0.20       |                                     | $          | 0.18 |   | $ | 0.62 |   | $ | 0.63 |   |
| Basic pro-forma                                                                                                     |       | $                                         | 0.18       |                                     | $          | 0.16 |   | $ | 0.55 |   | $ | 0.56 |   |
| Diluted as reported                                                                                                 |       | $                                         | 0.20       |                                     | $          | 0.18 |   | $ | 0.61 |   | $ | 0.62 |   |
| Diluted pro-forma                                                                                                   |       | $                                         | 0.17       |                                     | $          | 0.16 |   | $ | 0.54 |   | $ | 0.56 |   |

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

 

8

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

 

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

 

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

 

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

 

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

 

9

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**Item2****.****                                   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Overview**

 

•       We sellupscale, name brand home furnishings, gifts and related items significantlybelow retail prices charged by department and specialty stores throughout 713stores in 45 states. We have a unique event-based selling strategy that createsa sense of urgency and excitement for our customer base.

 

•       Our storebase has grown at approximately 10% per year for each of the last five years,and during the first nine months of 2005 we expanded our store base by 62 newstores and had 11 store closures.

 

•       During thesecond quarter of 2005, we paid our first annual dividend of $0.65 per sharetotaling $26.9 million to our common stockholders and intend in the future tocontinue our payment of an annual dividend to our stockholders.

 

•       Ouroperating profits, combined with more efficient use of working capital andincreased inventory turns over past years have increased cash flow, which hasbeen used to reduce debt. At September30, 2005, we had $49.5 million in debt outstanding as compared to $80.7 millionin debt outstanding at September 30, 2004. We anticipate using our revolvingcredit facility during certain periods of the remainder of 2005 for inventorypurchases and capital expenditures, but we expect to generate excess cash flowfor the fiscal year 2005. We will be evaluating appropriate uses of any excesscash flow, including the use of capital to expand the business and to payfuture dividends.

 

**LeaseAccounting Adjustment**

 

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

 

Asa result of this adjustment, we recorded a non-cash, $3.9 million($2.4 million, net of income tax or $0.06 per diluted share) cumulativecharge to earnings during the first quarter of 2005. The adjustment did notimpact historical or future net cash flows or the timing of the payments underrelated leases. We believe that the new lease accounting policies will not havea material effect on future diluted earnings per share. Prior years’ financialstatements were not restated as the impact of this issue was immaterial topreviously reported results for any individual previous periods.

 

**Resultsof Operations**

 

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

 
| ** **                                       | ** ** | **Three Months Ended   September**** 30,** | ** ** | **Nine Months Ended   September 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                        | ** ** | **2004**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales                                        |       | 100.0                                           | %          | 100.0                                      | %          | 100.0 | % | 100.0 | % |
| Cost of sales                                    |       | 61.2                                            |       | 63.1                                       |       | 61.7 |   | 62.7 |   |
| Gross profit                                     |       | 38.8                                            |       | 36.9                                       |       | 38.3 |   | 37.3 |   |
| Selling, general and administrative expense      |       | 31.9                                            |       | 30.0                                       |       | 31.5 |   | 29.7 |   |
| Operating income                                 |       | 6.9                                             |       | 6.9                                        |       | 6.8 |   | 7.6 |   |
| Net interest expense and other income  (expense) |       | (0.2                                            | )     | (0.3                                       | )          | 0.0 |   | (0.2 | ) |
| Income before income taxes                       |       | 6.7                                             |       | 6.6                                        |       | 6.8 |   | 7.4 |   |
| Income tax expense                               |       | 2.4                                             |       | 2.6                                        |       | 2.5 |   | 2.8 |   |
| Net income                                       |       | 4.3                                             | %          | 4.0                                        | %          | 4.3 | % | 4.6 | % |

 

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**Three Months Ended September 30, 2005**

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

 

During the third quarter of 2005, net sales increased to $192.3 millionfrom $186.1 million, an increase of $6.2 million or 3.3% compared to the samequarter of 2004. The increase in third quarter sales is primarily due to salesfrom non-comparable new stores, offset by a 4.4% decrease in comparable storesales.  Approximately 0.8% of thecomparable store decrease was due to lower sales production at various storesin the Gulf coast states that were affected by hurricanes Katrina and Rita.  Without the affect of the hurricanes,comparable store sales would have been a decrease of 3.6%.  The decrease in comparable store sales forthe third quarter of 2005 was comprised of a 5.4% decrease in the number oftransactions and a 1.0% increase in the average transaction amount.  Average store sales for the third quarter of2005 decreased 7.1% when compared to the same prior year quarter.

Gross profit increased $6.1 million or 8.9% to $74.7 million for thethree months ended September 30, 2005 as compared to last year’s thirdquarter of $68.6 million, as a result of our increased net sales and lowerrequired markdowns.  Our gross profitpercentage increased to 38.8% from 36.9% in the prior year’s thirdquarter.  This 1.9% increase is primarilydue to the 1.4% decrease in the cost of markdowns taken during the thirdquarter of 2005 and the slight improvement in our product sales mix and to a 0.5%improvement in the leveraging of our freight and distribution costs.

Selling, general and administrative expenses are comprised of storelabor, store occupancy costs, advertising, miscellaneous store operatingexpenses and corporate office costs. Increases in dollar amounts of theseexpenses are attributable to increases in the number of stores and increases invariable expenses due to sales growth. Variable expenses include payroll andrelated benefits, advertising expense and other expenses such as credit cardfees.

Selling, general and administrative expenses increased $5.7 million, or10.2%, to $61.4 million from $55.7 million in the third quarter of 2004.  The increase was primarily attributable tothe opening of new stores and increases in advertising expense.  As a percentage of net sales these expensesincreased 1.9% to 31.9% in third quarter of 2005 from 30.0% in the thirdquarter of 2004.  The increasedpercentage is primarily due to reduced expense leveraging given our negativecomparable store sales and includes a 1.6% increase related to rent, occupancyand depreciation expense and a 0.7% increase in advertising, offset by a 0.4%decrease in general and administrative expenses.

Net interest and other income (expense) decreased $0.3 million comparedto the third quarter of 2004.   Thisreduction is a result of less borrowings under our revolving credit line in thethird quarter of 2005 as compared to the third quarter of 2004.

The income tax provision for the three month periods ended September 30,2005 and 2004 was $4.7 million respectively, reflecting an effective tax rateof 36.6% and 38.6%, respectively.  Theeffective tax rate is lower in the third quarter of 2005 as compared to the thirdquarter of 2004 due to a lower estimated annual effective tax for 2005 and thenet adjustments to tax reserves related to the net favorable settlements withcertain state taxing authorities.

**Nine Months Ended September 30, 2005**

**Comparedto the Nine Months Ended September 30, 2004**

 

Duringthe first nine months of 2005, net sales increased to $596.6 million from $565.4million, an increase of $31.2 million or 5.5% compared to the same period of2004. The increase in sales for the first nine months of 2005 is primarily dueto sales from non-comparable new stores, offset by a 3.3% decrease incomparable store sales.  The decrease incomparable store sales for the first nine months of 2005 was comprised of a 2.0%decrease in the number of transactions and a 1.3% decrease in the averagetransaction amount.  Average store salesfor the first nine months of 2005 decreased 6.0% when compared to the sameprior year period. 

 

Grossprofit increased $17.7 million or 8.4% to $228.7 million for the nine monthsended September 30, 2005 as compared to the nine month period last year of$211.0 million, primarily as a result of our increased net sales.  Our gross profit percentage increased to 38.3%from 37.3% in the prior year’s nine month period.  This 1.0% increase is primarily due to a 0.7%reduction in the cost of markdowns and a 0.3% improvement in our leveraging ofour distribution and freight expenses.

 

Selling,general and administrative expenses increased $20.1 million, or 12.0%, to $188.2million in the first nine months of 2005 from $168.1 million in the first ninemonths of 2004.  The increase was primarilyattributable to the opening of new stores, to the $3.9 million lease accountingadjustment taken in the first quarter of 2005 and to increases in variable expenses.  As a percentage of net sales these expensesincreased 1.8% to 31.5% in the first nine months of 2005 from 29.7% in thefirst nine months of 2004.  The increasedpercentage is primarily due to reduced expense leveraging given our negativecomparable store sales and includes a 0.7% increase in rent expense due to thelease accounting adjustment and a 1.1% increase related to rent, occupancy anddepreciation expense.

 

Netinterest and other income (expense) decreased $0.9 million compared to the firstnine months of 2004.  This reduction is aresult of less borrowings under our revolving credit line in the first ninemonths of 2005 as compared to the first nine months of 2004.

 

Theincome tax provision for the nine month periods ended September 30, 2005and 2004 was $14.9 million and $16.1 million, respectively, reflecting aneffective tax rate of 37.0% and 38.5%, respectively.  The effective tax rate is lower in the first ninemonths of 2005 as compared to the first nine months of 2004 due to a lower estimatedannual effective tax for 2005 and the net adjustment of tax reserves related tonet favorable settlements with certain state taxing authorities.

 

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**Liquidity and Capital Resources**

 

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

 

Net cash used in operating activities for the nine months ended September 30,2005 and 2004 was $51.3 million and $77.7 million, respectively, representing a$26.4 million decrease. This decrease is predominantly due to the decrease ininventory purchases in the first nine months of 2005 as compared to the first ninemonths of 2004.

 

At September 30, 2005, our inventory increased $104.3 million to $293.4million from $189.1 million at December 31, 2004 primarily due to the normalseasonal build-up of inventory for the holiday season and the increase in thenumber of stores.

 

Capitalexpenditures principally associated with new store opening and warehouseequipment were $13.0 million and $18.4 million for the nine months ended September 30,2005 and 2004, respectively.  Thedecrease in capital expenditures is due to reduced spending on warehouseequipment in the nine months ended September 30, 2005 as compared to the thenine months ended September 30, 2004.  Weexpect to spend approximately $3.5 million for additional capital expendituresfor the remainder of 2005, which will include the opening of new stores, enhancementsof selected stores, and purchases of equipment for our distribution center.

 

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

 

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

 

AtSeptember 30, 2005, we had $49.5 million in debt outstanding under therevolving credit facility and had availability of $150.8 million.  As of September 30, 2005 and 2004, we hadoutstanding letters of credit of $9.7 million and $7.9 million, respectively,primarily for self-insurance.

 

Therevolving credit facility contains certain restrictive covenants, which amongother things, require us to comply with certain financial ratios coveringmaximum leverage, minimum fixed charge coverage and minimum interest coverage.Other restrictions affect our ability to incur liens or make certain otherrestricted payments, sell assets or merge or consolidate with any other person.As of September 30, 2005, we were in compliance with all covenants.

 

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

 

**Store Openings/Closings**

 
| ** **                         | ** ** | **Nine Months  Ended  September 30,  2005** | ** ** | **Nine Months  Ended  September 30,  2004** | ** ** | **Twelve Months  Ended  December 31,  2004** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|
|                               |       |                                        |       |                                             |       |                                              |       |
| Stores open at beginning of period |       | 662                                         |       | 577                                              |       | 577                                               |       |
| Stores opened during the period    |       | 62                                          |       | 68                                               |       | 89                                                |       |
| Stores closed during the period    |       | (11                                         | )          | (4                                               | )          | (4                                                | )          |
| Stores open at end of period       |       | 713                                         |       | 641                                              |       | 662                                               |       |

 

12

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**Item3**.    Quantitative and Qualitative DisclosuresAbout Market Risk

 

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

 

**Item 4**. Controls andProcedures

 

**DisclosureControls and Procedures**

 

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

 

A control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Because of inherent limitations inall control systems, no evaluation of controls can provide absolute assurance thatall control issues, if any, within a company have been detected. Accordingly,our disclosure controls and procedures are designed to provide reasonable, notabsolute, assurance that the objectives of our disclosure control system aremet and, as set forth above, our chief executive officer and chief financialofficer have concluded, based on their evaluation as of the end of the periodcovered by this report, that our disclosure controls and procedures weresufficiently effective to provide reasonable assurance that the objectives ofour disclosure control system were met.

 

**Changes in Internal Control Over FinancialReporting**

 

There were no changes in ourinternal control over financial reporting that occurred during the quarterended September 30, 2005 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

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

 

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

 

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

 

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

 

In June 2004, we were named as a defendant in a complaint filed inthe U.S. District Court, Central District of California. The plaintiff, ThomasKinkade Company (f/k/a/ Media Arts Group Inc.), is alleging copyrightinfringement and false advertisements on merchandise we sold in the secondquarter of 2004. This lawsuit is set for trial in November 2005.

 

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

 

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**Item 5. Other Information**

 

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

 

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

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

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

 

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SIGNATURE

 

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

 
| ** ** |              | **TUESDAY MORNING CORPORATION** |                                                                                                                                                                                                  |
|------------|-------------------|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |              | (Registrant)                    | ** **                                                                                                                                                                                            |
|       |              |                            |                                                                                                                                                                                                  |
|       |              |                            |                                                                                                                                                                                                  |
| DATE:      | October  31, 2005 | By:                             | /s/  Loren K. Jensen                                                                                                                                                                                  |   |
|       |              |                            | Loren  K. Jensen, Executive Vice President,  Chief Financial Officer, Treasurer and Secretary   (Principal Financial Officer and duly   authorized to sign this report on behalf of the   registrant) |
|            |                   |                                 |                                                                                                                                                                                                       |  |  |  |

 

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**EXHIBIT INDEX**

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

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

 

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