**(**

| Delaware                                                                                    |   | 75-1475223                                                        |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|
| (State                or other jurisdiction ofincorporation                or organization) |   | (I.R.S.                EmployerIdentification                No.) |
|                                                                                        |   |                                                              |
| 550                Bailey Avenue, Fort Worth, Texas                                         |   | 76107                                                             |
| (Address                of principal executive offices)                                     |   | (Zip                Code)                                         |

| (817)                347-8200                                                      |
|------------------------------------------------------------------------------------|
| (Registrant's                telephone number, including area                code) |

|   |
|--------|

| Class                                     |   | Number                of shares outstanding at December                6,                2006 |
|-------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
| Common                stock, $1 par value |   | 36,374,292                                                                                         |

----

| PART                I - FINANCIAL INFORMATION                                                                                               | Page                No. |
|---------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
|                                                                                                                                        |                    |
| Item                                                                                                                                        |                    |
| 1.                Financial Statements                (Unaudited)                              | 3-14                    |
| Consolidated                Statements of Operations                                                                                        | 3                       |
| Consolidated                Balance Sheets                                                                                                  | 4                       |
| Consolidated                Statements of Cash Flows                                                                                        | 5                       |
| Notes                to Consolidated Financial Statements                                                                                   | 6-14                    |
|                                                                                                                                        |                    |
| 2.                Management’s Discussion and Analysis of Financial Condition and                Results                of Operations | 15-24                   |
| General                                                                                                                                     | 15-16                   |
| Executive                Summary                                                                                                            | 16-18                   |
| Results                of Operations                                                                                                        | 19-22                   |
| Liquidity                and Capital Resources                                                                                              | 22-23                   |
| Recent                Accounting Pronouncements                                                                                             | 23-24                   |
|                                                                                                                                        |                    |
| 3.                Quantitative and Qualitative Disclosures About Market Risk                                                                | 25                      |
|                                                                                                                                        |                    |
| 4.                Controls and Procedures                                                                                                   | 25                      |
|                                                                                                                                        |                    |
| PART                II - OTHER INFORMATION                                                                                                  |                    |
|                                                                                                                                        |                    |
| 1.                Legal Proceedings                                                                                                         | 26                      |
|                                                                                                                                        |                    |
| 1A.                Risk Factors                                                                                                             | 26                      |
|                                                                                                                                        |                    |
| 4.                Submission of Matters to a Vote of Security Holders                                                                       | 27                      |
|                                                                                                                                        |                    |
| 6.                Exhibits                                                                                                                  | 27                      |
|                                                                                                                                        |                    |
| 7.                Signatures                                                                                                                | 28                      |

----

*In          thousands, except per share amounts*

|                                                              | Three                    Months Ended |      | Nine                    Months Ended |
|-------------------------------------------------------------------|---------------------------------------|-----------|--------------------------------------|
|                                                              | October                    28,        |      | October                    29,       |   | October                    28, |   | October                    29, |
|                                                              | 2006                                  |      | 2005                                 |   | 2006 |   | 2005 |
|                                                              |                                  |      | (as                    adjusted)     |   |   |   | (as                    adjusted) |
|                                                              |                                  |      |                                 |   |   |   |   |
| Net                    revenue                          | $                                     | 108,220   |                                 | $ | 128,062 |   | $ | 348,160 |   | $ | 378,220 |
| Costs                    and expenses:                            |                                  |      |                                 |   |   |   |   |   |   |   |   |
| Cost                    of sales, buying and store                |                                  |      |                                 |   |   |   |   |   |   |   |   |
| occupancy                    costs                                |                                  | 86,683    |                                 |   | 96,842 |   |   | 282,810 |   |   | 294,463 |
| Selling,                    general & administrative expenses |                                  | 36,722    |                                 |   | 40,895 |   |   | 116,025 |   |   | 119,931 |
|                                                              |                                  |      |                                 |   |   |   |   |   |   |   |   |
| Operating                    loss                                 |                                  | (15,185)  |                                 |   | (9,675) |   |   | (50,675) |   |   | (36,174) |
| Gain                    on sale of assets                         |                                  | --        |                                 |   | 4,130 |   |   | -- |   |   | 4,690 |
| Interest                    expense, net                          |                                  | (815)     |                                 |   | (970) |   |   | (1,464) |   |   | (1,800) |
|                                                              |                                  |      |                                 |   |   |   |   |   |   |   |   |
| Loss                    before income taxes                       |                                  | (16,000)  |                                 |   | (6,515) |   |   | (52,139) |   |   | (33,284) |
| Income                    tax benefit                             |                                  | (376)     |                                 |   | (2,160) |   |   | (1,041) |   |   | (11,608) |
| Net                    loss                                       |                                  | ($15,624) |                                 |   | ($4,355) |   |   | ($51,098) |   |   | ($21,676) |
|                                                              |                                  |      |                                 |   |   |   |   |   |   |   |   |
| Net                    loss per basic & diluted share         |                                  | ($0.43)   |                                 |   | ($0.12) |   |   | ($1.42) |   |   | ($0.60) |
|                                                              |                                  |      |                                 |   |   |   |   |   |   |   |   |
| Avg.                    common shares outstanding                 |                                  | 36,253    |                                 |   | 36,349 |   |   | 36,098 |   |   | 36,169 |
|                                                              |                                  |      |                                 |   |   |   |   |   |   |   |   |

----

*(In      thousands, except per share amounts)*

|                                                              | October                28, |     | January                28, |   | October                29,   |
|-------------------------------------------------------------------|----------------------------|----------|----------------------------|--------|------------------------------|
|                                                              | 2006                       |     | 2006                       |   | 2005                         |
| ASSETS                                                            |                       |     |                       |   | (as                adjusted) |
| Current                assets:                                    |                       |     |                       |   |                         |
| Cash                and cash equivalents                          | $                          | 3,718    |                       | $      | 4,015                        |   | $ | 7,688 |
| Inventories                                                       |                       | 151,717  |                       |   | 128,719                      |   |   | 176,302 |
| Other                current assets                               |                       | 17,604   |                       |   | 14,846                       |   |   | 32,521 |
|  Total                current assets                         |                       | 173,039  |                       |   | 147,580                      |   |   | 216,511 |
|                                                              |                       |     |                       |   |                         |   |   |   |
| Property                and equipment, net                        |                       | 81,778   |                       |   | 84,651                       |   |   | 89,601 |
|                                                              |                       |     |                       |   |                         |   |   |   |
| Deferred                taxes                                     |                       | 488      |                       |   | 456                          |   |   | 11,848 |
| Goodwill,                net                                      |                       | 423      |                       |   | 423                          |   |   | 423 |
| Other                assets                                       |                       | 3,981    |                       |   | 5,631                        |   |   | 5,079 |
|  Total                assets                                 | $                          | 259,709  |                       | $      | 238,741                      |   | $ | 323,462 |
|                                                              |                       |     |                       |   |                         |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY               |                       |     |                       |   |                         |   |   |   |
| Current                liabilities:                               |                       |     |                       |   |                         |   |   |   |
| Short-term                borrowings                              | $                          | 69,062   |                       | $      | --                           |   | $ | 62,218 |
| Accounts                payable and accrued expenses              |                       | 29,982   |                       |   | 29,176                       |   |   | 31,669 |
| Gift                certificates redeemable                       |                       | 8,541    |                       |   | 9,224                        |   |   | 8,042 |
| Accrued                payroll and bonuses                        |                       | 4,028    |                       |   | 6,219                        |   |   | 3,134 |
| Accrued                insurance                                  |                       | 5,813    |                       |   | 5,178                        |   |   | 4,997 |
| Customer                deposits                                  |                       | 6,410    |                       |   | 4,526                        |   |   | 8,995 |
| Current                portion of accrued rent                    |                       | 4,011    |                       |   | 3,871                        |   |   | 3,905 |
| Other                current liabilities                          |                       | 5,809    |                       |   | 5,834                        |   |   | 3,301 |
|  Total                current liabilities                    |                       | 133,656  |                       |   | 64,028                       |   |   | 126,261 |
|                                                              |                       |     |                       |   |                         |   |   |   |
| Accrued                rent and other long term liabilities       |                       | 39,838   |                       |   | 38,976                       |   |   | 37,462 |
|                                                              |                       |     |                       |   |                         |   |   |   |
| Stockholders'                equity:                              |                       |     |                       |   |                         |   |   |   |
| Preferred                stock, $1 par value,                     |                       |     |                       |   |                         |   |   |   |
|  1,000,000                shares authorized                  |                       | --       |                       |   | --                           |   |   | -- |
| Common                stock, $1 par value, 50,000,000             |                       |     |                       |   |                         |   |   |   |
|  shares                authorized, 38,149,646 shares issued  |                       | 38,150   |                       |   | 38,150                       |   |   | 38,150 |
| Additional                paid-in capital                         |                       | 80,196   |                       |   | 79,817                       |   |   | 79,910 |
| Retained                earnings (deficit)                        |                       | (27,158) |                       |   | 23,669                       |   |   | 48,724 |
| Accumulated                other comprehensive income             |                       | 2,154    |                       |   | 2,077                        |   |   | 1,683 |
| Common                shares in treasury, at cost, 1,776,202;     |                       |     |                       |   |                         |   |   |   |
|  1,715,066                and 1,788,078 shares, respectively |                       | (7,127)  |                       |   | (7,038)                      |   |   | (7,338) |
| Deferred                compensation                              |                       | --       |                       |   | (938)                        |   |   | (1,390) |
|  Total                stockholders' equity                   |                       | 86,215   |                       |   | 135,737                      |   |   | 159,739 |
|                                                              |                       |     |                       |   |                         |   |   |   |
| Total                liabilities and stockholders' equity         | $                          | 259,709  |                       | $      | 238,741                      |   | $ | 323,462 |
|                                                              |                       |     |                       |   |                         |   |   |   |

----

*In      thousands, except per share amounts*

|                                                                                                      |
|-----------------------------------------------------------------------------------------------------------|
|                                                                                                      | Nine                Months Ended |
|                                                                                                      | October                28, |   | October                29, |
|                                                                                                      | 2006 |   | 2005 |
|                                                                                                      |   |   | (as                adjusted) |
| Cash                flows from operating activities:                                                      |   |   |   |
| Net                loss                                                                                   |   | ($51,098) |   |   | ($21,676) |
| Adjustments                to reconcile net loss to net cash used in operating                activities: |   |   |   |   |   |
|  Depreciation                and amortization                                                        |   | 13,784 |   |   | 14,274 |
|  Stock-based                compensation expense                                                     |   | 1,307 |   |   | 1,178 |
|  Gain                on sale of assets                                                               |   | -- |   |   | (4,690) |
|  Amortization                of landlord construction allowances and other                           |   | (2,709) |   |   | (3,224) |
| Change                in assets and liabilities:                                                          |   |   |   |   |   |
|  Increase                in inventories                                                              |   | (22,668) |   |   | (30,706) |
|  Increase                in other assets                                                             |   | (2,629) |   |   | (9,849) |
|  Increase                (decrease) in current liabilities                                           |   | 88 |   |   | (6,247) |
|  Increase                in noncurrent liabilities                                                   |   | 427 |   |   | 703 |
| Landlord                construction allowances                                                           |   | 3,197 |   |   | 6,546 |
| Net                cash used in operating activities                                                      |   | (60,301) |   |   | (53,691) |
|                                                                                                      |   |   |   |   |   |
| Cash                flows from investing activities:                                                      |   |   |   |   |   |
|  Purchases                of property and equipment                                                  |   | (9,143) |   |   | (16,347) |
|  Proceeds                from sale of assets                                                         |   | 3 |   |   | 5,996 |
| Net                cash used in investing activities                                                      |   | (9,140) |   |   | (10,351) |
|                                                                                                      |   |   |   |   |   |
| Cash                flows from financing activities:                                                      |   |   |   |   |   |
|  Net                short-term borrowings                                                            |   | 69,062 |   |   | 62,218 |
|  Increase                in outstanding checks in excess of cash balances                            |   | 33 |   |   | -- |
|  Proceeds                from the exercise of employee stock options                                 |   | 3 |   |   | 671 |
|  Sale                of stock to employee benefit plans and other                                    |   | 83 |   |   | 145 |
| Net                cash provided by financing activities                                                  |   | 69,181 |   |   | 63,034 |
|                                                                                                      |   |   |   |   |   |
| Effect                of exchange rate change on cash and cash equivalents                                |   | (37) |   |   | (472) |
|                                                                                                      |   |   |   |   |   |
| Net                decrease in cash and cash equivalents                                                  |   | (297) |   |   | (1,480) |
| Cash                and cash equivalents at beginning of period                                           |   | 4,015 |   |   | 9,168 |
| Cash                and cash equivalents at end of period                                                 | $ | 3,718 |   | $ | 7,688 |
|                                                                                                      |   |   |   |   |   |
| Supplemental                disclosure of cash flow information:                                          |   |   |   |   |   |
| Interest                paid                                                                              | $ | 1,254 |   | $ | 1,639 |
| Income                taxes paid                                                                          |   | 71 |   |   | 327 |
| Non-cash                investing and financing activities:                                               |   |   |   |   |   |
| Distributions                of restricted stock                                                          |   | 73 |   |   | 1,368 |
| Cancellations                of restricted stock                                                          |   | (328) |   |   | (156) |
| Distribution                of director fees                                                              |   | 59 |   |   | 132 |

----

| (1)   | Basis                of Presentation |
|-----------------|--------------------------------------|

**General**

**Capital      Resources and Liquidity**

**Loss      per Share**

----

|                                                             | Three                Months Ended |   | Nine                Months Ended |
|------------------------------------------------------------------|-----------------------------------|--------|----------------------------------|
|                                                             | October                28,        |   | October                29,       |   | October                28, |   | October                29, |
|                                                             | 2006                              |   | 2005                             |   | 2006 |   | 2005 |
|                                                             |                              |   | (as                adjusted)     |   |   |   | (as                adjusted) |
| Numerator                                                        |                              |   |                             |   |   |   |   |
| Net                loss                                          | $(15,624)                         |   | $(4,355)                         |   | $(51,098) |   | $(21,676) |
| Denominator                for basic and diluted loss per share: |                              |   |                             |   |   |   |   |   |   |   |   |
| Average                common shares outstanding                 |                              | 36,253 |                             |   | 36,349 |   |   | 36,098 |   |   | 36,169 |
| Basic                and diluted loss per share                  | $                                 | (0.43) |                             | $ | (0.12) |   | $ | (1.42) |   | $ | (0.60) |
|                                                             |                              |   |                             |   |   |   |   |   |   |   |   |

|                                         | Period                Ended |
|----------------------------------------------|-----------------------------|
|                                         | October                28,  |   | October                29, |
|                                         | 2006                        |   | 2005 |
| Stock                options                 |                        | 4,079 |   |   | 3,289 |
| Unvested                restricted stock     |                        | 113 |   |   | -- |
| Deferred                director stock units |                        | 163 |   |   | 73 |
| Total                                        |                        | 4,355 |   |   | 3,362 |
|                                         |                        |   |   |   |   |

| (2)   | Adjustment                to Previously Issued Financial                Statements |
|-----------------|------------------------------------------------------------------------------------|

*Accounting      for Rental Costs Incurred During a Construction Period*

----

|                                                                          | **As                of October 29, 2005**                    |
|-------------------------------------------------------------------------------|--------------------------------------------------------------|
|                                                                          | As                Reported                                   |   | Impact                of Adjustment |   | As                Adjusted |
| **Consolidated                Balance Sheet**                                 |                                                         |   |   |   |   |
| Property                and equipment, net                                    | $                                                            | 95,120 |   | $ | (5,519) |   | $ | 89,601 |
| Other                assets                                                   |                                                         | 15,337 |   |   | 2,013 |   |   | 17,350 |
| Total                assets                                                   |                                                         | 326,968 |   |   | (3,506) |   |   | 323,462 |
| Accum.                other comprehensive income                              |                                                         | 1,676 |   |   | 7 |   |   | 1,683 |
| Retained                earnings                                              |                                                         | 52,237 |   |   | (3,513) |   |   | 48,724 |
| Total                stockholders’ equity                               |                                                         | 163,245 |   |   | (3,506) |   |   | 159,739 |
| Total                liabilities & stockholders’ equity             |                                                         | 326,968 |   |   | (3,506) |   |   | 323,462 |
|                                                                          |                                                         |   |   |   |   |   |   |   |
|                                                                          | **Three                Months Ended October 29, 2005**  |
|                                                                          |                                                         | As                Reported |   |   | Impact                of Adjustment |   |   | As                Adjusted |
| **Consolidated                Statement of Operations**                       |                                                         |   |   |   |   |   |   |   |
| Cost                of sales, buying and store                occupancy costs | $                                                            | 96,504 |   | $ | 338 |   | $ | 96,842 |
| Loss                before income taxes                                       |                                                         | (6,177) |   |   | (338) |   |   | (6,515) |
| Income                tax benefit                                             |                                                         | (2,048) |   |   | (112) |   |   | (2,160) |
| Net                loss                                                       |                                                         | (4,129) |   |   | (226) |   |   | (4,355) |
| Basic                loss per share                                           | $                                                            | (0.11) |   | $ | (0.01) |   | $ | (0.12) |
| Diluted                loss per share                                         | $                                                            | (0.11) |   | $ | (0.01) |   | $ | (0.12) |
|                                                                          |                                                         |   |   |   |   |   |   |   |
|                                                                               | **Nine                Months Ended October 29, 2005**   |
|                                                                          |                                                         | As                Reported  |   |   | Impact                of Adjustment |   |   | As                Adjusted |
| **Consolidated                Statement of Operations**                       |                                                         |   |   |   |   |   |   |   |
| Cost                of sales, buying and store                occupancy costs | $                                                            | 294,205 |   | $ | 258 |   | $ | 294,463 |
| Loss                before income taxes                                       |                                                         | (33,026) |   |   | (258) |   |   | (33,284) |
| Income                tax benefit                                             |                                                         | (11,526) |   |   | (82) |   |   | (11,608) |
| Net                loss                                                       |                                                         | (21,500) |   |   | (176) |   |   | (21,676) |
| Basic                loss per share                                           | $                                                            | (0.59) |   | $ | (0.01) |   | $ | (0.60) |
| Diluted                loss per share                                         | $                                                            | (0.59) |   | $ | (0.01) |   | $ | (0.60) |

| (3)   | Stock-Based                Compensation Plans |
|-----------------|-----------------------------------------------|

*Share-Based      Payment*
*Accounting      for Stock-Based Compensation*
*Accounting      for Stock Issued to Employees*

----

|                                                                                                                                               | Three                Months  |    | Nine                Months   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|---------|------------------------------|
|                                                                                                                                               | (as                adjusted) |    | (as                adjusted) |
| Net                loss, as reported                                                                                                               | $                            | (4,355) |                         | $ | (21,676) |
| Stock-based                employee compensation expense included in reported net income, net                of                related tax effects |                         | 301     |                         |   | 682 |
| Fair                value stock-based compensation expense, net of tax effect                                                                      |                         | (600)   |                         |   | (1,658) |
| Net                loss, pro forma                                                                                                                 | $                            | (4,654) |                         | $ | (22,652) |
|                                                                                                                                               |                         |    |                         |   |   |
| Basic                loss per share, as reported                                                                                                   | $                            | (0.12)  |                         | $ | (0.60) |
| Pro                forma loss per share under SFAS 123                                                                                             | $                            | (0.13)  |                         | $ | (0.63) |

*Stock      Options*

|                                                          | Three                Months Ended |   | Nine                Months Ended |
|---------------------------------------------------------------|-----------------------------------|--------|----------------------------------|
|                                                          | October                28,2006    |   | October                29,2005   |   | October                28,2006 |   | October                29,2005 |
| Risk                free interest rate                        |                              | 4.9%   |                             |   | 4.3% |  |   | 4.8% |   |   | 4.3% |
| Expected                term (in years)                       |                              | 6.0    |                             |   | 6.0 |   |   | 6.2 |   |   | 6.0 |
| Expected                volatility                            |                              | 62.7%  |                                  |   | 64.1% |   |   | 62.6% |   |   | 64.1% |
| Expected                dividend yield                        |                              | --     |                             |   | -- |   |   | -- |   |   | -- |
| Weighted                average fair value of options granted | $                                 | 1.18   |                             | $ | 2.88 |   | $ | 1.78 |   | $ | 2.98 |

----

|                                           |                          |   |     |   | Weighted                    |   |                          |
|------------------------------------------------|-------------------------------|--------|----------|--------|-----------------------------|--------|-------------------------------|
|                                           |                          |   | Weighted |   | Average                     |   |                          |
|                                           |                          |   | Average  |   | Remaining                   |   | Aggregate                     |
|                                           |                          |   | Exercise |   | Contractual                 |   | Intrinsic                     |
| Stock                Options                   | Shares                        |   | Price    |   | Term                (years) |   | Value                         |
|                                           | (in                thousands) |   |     |   |                        |   | (in                thousands) |
| Outstanding                at January 28, 2006 |                          | 3,168  |     | $      | 5.52                        |   |                          |   |   |   |   |
| Granted                                        |                          | 1,521  |     | $      | 2.84                        |   |                          |   |   |   |   |
| Exercised                                      |                          | 1      |     | $      | 2.92                        |   |                          |  |   | $ | -- |
| Forfeited                or expired            |                          | 609    |     | $      | 4.45                        |   |                          |   |   |   |   |
| Outstanding                at October 28, 2006 |                          | 4,079  |     | $      | 4.67                        |   |                          | 4.6 |   | $ | 19,051 |
|                                           |                          |   |     |   |                        |   |                          |   |   |   |   |
| Exercisable                at October 28, 2006 |                          | 2,874  |     | $      | 5.48                        |   |                          | 4.0 |   | $ | 15,736 |

*Restricted      Stock*

|   Restricted                Stock  |  Shares |    | Weighted                AverageGrant                Date Fair                Value |
|----------------------------------------------|--------------|---------|------------------------------------------------------------------------------------|
| Nonvested                at January 28, 2006 |         | 514,274 |                                                                               | $ | 6.25 |
| Granted                                      |         | 32,500  |                                                                               | $ | 2.16 |
| Vested                                       |         | 371,647 |                                                                               | $ | 6.61 |
| Forfeited                                    |         | 61,688  |                                                                               | $ | 5.27 |
| Nonvested                at October 28, 2006 |         | 113,439 |                                                                               | $ | 4.43 |
|                                         |         |    |                                                                               |   |   |

----

| (4)   | Comprehensive                Loss |
|-----------------|-----------------------------------|

|                                                    | Three                Months Ended |     | Nine                Months Ended |
|---------------------------------------------------------|-----------------------------------|----------|----------------------------------|
|                                                    | October                28,2006    |     | October                29,2005   |   | October                28,2006 |   | October                29,2005 |
|                                                    |                              |     | (as                adjusted)     |   |   |   | (as                adjusted) |
| Net                loss                                 | $                                 | (15,624) |                             | $ | (4,355) |   | $ | (51,098) |   | $ | (21,676) |
| Foreign                currency translation adjustments |                              | (137)    |                             |   | 633 |   |   | 77 |   |   | 732 |
| Comprehensive                loss                       | $                                 | (15,761) |                             | $ | (3,722) |   | $ | (51,021) |   | $ | (20,944) |
|                                                    |                              |     |                             |   |   |   |   |   |   |   |   |

| (5)   | Income                Taxes |
|-----------------|-----------------------------|

*Accounting      for Income Taxes*

| (6)   | Debt |
|-----------------|------|

----

| ·   | the                rate last quoted in the Wall Street Journal as the “base rate loan of                corporate loans posted by at least 75% of the nation's largest banks”                or |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                Eurodollar rate plus a margin of 1.00% to 1.75%, with such margin                depending on the amount by which the average available commitment                exceeds                the usage under the facility during the prior                quarter. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                requirement that the Company maintain minimum availability equal                to 7.5%                of the aggregate borrowing base; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                requirement that the Company report to the lender certain financial                and                operational information on a recurring                basis: |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | restrictions                regarding the incurrence of debt by the                Company; |
|--------------------|---------------------------------------------------------------------------------------------|

| ·   | restrictions                regarding the creation of liens on assets of the                Company; |
|--------------------|------------------------------------------------------------------------------------------------------|

| ·   | restrictions                regarding dissolution, liquidation or merger of the Company; restrictions                regarding the Company making certain investments, advances and loans; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | restrictions                regarding the sale, transfer or other disposition of assets of the                Company; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------|

| ·   | restrictions                regarding transactions with affiliates of the                Company. |
|--------------------|---------------------------------------------------------------------------------------------------|

*Inventory      Costs*

----

*How      Sales Taxes Collected from Customers and Remitted to Governmental Authorities      Should Be Presented in the Income Statement (That Is, Gross Versus Net      Presentation),*

*Accounting      for Uncertainty in Income Taxes—an interpretation of FASB Statement      No. 109*

*Fair      Value Measurements*

*Considering      the Effects of Prior Year Misstatements when Quantifying Misstatements in      Current Year Financial Statements*

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|                         | Three                Months Ended |    | Nine                Months Ended |
|------------------------------|-----------------------------------|---------|----------------------------------|
|                         | October                28, 2006   |    | October                29, 2005  |   | October                28, 2006 |   | October                29, 2005 |
| Net                revenue:  |                              |    |                             |   |   |   |   |   |   |   |   |   |   |   |   |
| United                States | $                                 | 89,191  |                             |   | 82.4% |   | $ | 110,398 |   |   | 86.2% |   | $ | 295,307 |   |   | 84.8% |   | $ | 329,983 |   |   | 87.2% |
| Canada                       |                              | 19,029  |                             |   | 17.6% |   |   | 17,664 |   |   | 13.8% |   |   | 52,853 |   |   | 15.2% |   |   | 48,237 |   |   | 12.8% |
| Total                        | $                                 | 108,220 |                             |   | 100.0% |   | $ | 128,062 |   |   | 100.0% |   | $ | 348,160 |   |   | 100.0% |   | $ | 378,220 |   |   | 100.0% |
|                         |                              |    |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                              | As                of            |
|-----------------------------------|---------------------------------|
|                              | October                28, 2006 |   | October                29, 2005 |
|                              |                            |   | (as                adjusted) |
| Long-lived                assets: |                            |   |   |   |   |   |   |
| United                States      | $                               | 74,371 |   |   | 86.3% |  | $ | 84,945 |   |   | 89.3% |
| Canada                            |                            | 11,811 |   |   | 13.7% |  |   | 10,158 |   |   | 10.7% |
| Total                             | $                               | 86,182 |   |   | 100.0% |  | $ | 95,103 |   |   | 100.0% |
|                              |                            |   |   |   |   |   |   |   |   |   |   |

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*Accounting      for Rental Costs Incurred During a Construction Period*

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| ·   |  Selling                unproductive and old inventory from our stores and distribution system                -                In order to reduce undesirable inventory that was not consistent                with our                future direction and to generate cash flow, the Company undertook                an                aggressive clearance sale during the June/July timeframe. The revenue                generated by the sale helped reduce inventory levels which were higher                than planned due in part to soft sales during May and the first half                of                June. While these actions successfully cleared unproductive inventory,                we                did not protect key product lines and items. This adversely affected                in-stock position in certain key inventory categories. In retrospect,                we                believe what was an overly aggressive inventory reduction plan reduced                inventory such that sales during the third quarter were negatively                affected. We have made course corrections to improve availability                of key                products including occasional furniture and accessories which are                critical                during the fourth quarter when the customer demand shifts from large                furniture to more giftable                items |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Strengthening                our store merchandise presentation - The Company modified its store                merchandise presentation to be more customer friendly and understandable                by realigning rooms for a more logical product adjacency. Previously,                products were displayed in lifestyle presentation in a room setting                as                opposed to a category presentation. In order to better showcase the                product and improve the customer shopping experience, the presentation                introduced during the third quarter of Fiscal 2006 has been refined                to                show like product in close proximity enabling the customer to easily                compare related product at various prices. In addition, aisles have                been widened to enable the customer to shop the store with greater                ease. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Developing                in-store presentations designed to increase sales velocity of core                items -                Reestablishing category dominance in those signature items for which                Bombay has been known is a critical component of the plan. Store                presentations have been redesigned to focus on key categories, including                occasional furniture, jewelry boxes, and memorabilia boxes. “Take-with”                product has been presented in bulk on the selling floor for a more                convenient shopping experience during the fourth quarter. We are                reducing                the SKU count to optimize productivity and editing the assortment                to help                better manage in-stock availability on key volume drivers and reduce                clutter. We don't expect to see the results of these                changes until early Fiscal                2007. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Reducing                head office overhead cost through headcount reductions and strong                expense                control - Actions were taken during the second quarter and in the                early                part of the third quarter to eliminate approximately 60 home office                positions and related expenses. The estimated savings as a result                of the                changes is approximately $7 million on an annual basis. The total                costs of                the headcount reductions are approximately $1.0 million, of which                $0.8 million of expense was incurred during the second quarter and                the                remainder was incurred during the third quarter. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Refocusing                marketing and eliminating unproductive print advertising - The plan                for                the remainder of Fiscal 2006 calls for replacing unproductive print                advertising with more targeted marketing that leverages the strengths                of                our mall and off-mall locations. We will focus on in-store signage                and                inviting windows to take advantage of mall traffic. Direct mail campaigns,                including catalogs and postcards, will focus more on off-mall locations                -                reaching out to customers who may be unaware of our new locations                as we                have moved from mall to off-mall in many markets in recent years.                We will                continue to leverage our Internet channel and the use of e-mail campaigns                which have had favorable response rates, to drive traffic to our                stores.                As a result, during the second half of Fiscal 2006, the Company expects                to                reduce its marketing cost by approximately $6 million compared to                amounts                previously planned and by more than $9 million compared to the second                half                of Fiscal 2005. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Converting                our BombayKIDS operations to core assortments - Since 2002, we opened                approximately 63                BombayKIDS stores, 59 of which were part of a “combination” store that has                a Bombay core store adjacent to it with a pass through between the                two                concepts. Over the next 9 to 15 months, we plan to convert square                footage                currently dedicated to BombayKIDS to include an expanded core assortment                with the goal of improving the overall productivity and cash flow                of the                store. We expect to make an orderly transition between the assortments                -                with a focus on maximizing inventory value where possible. Key to                the                success of the initiative is the introduction of new core product                that is                expected to arrive in stores during spring of 2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Reducing                discretionary in-store markdowns - We have targeted approximately                $11                million of reduced discretionary in-store markdowns as part of improving                overall profitability. Since June, we have implemented new policies                with                respect to sale of floor models and slightly damaged “as is” merchandise.                We have had a general increase in awareness of the goal by store                sales                associates and are making progress with improving                compliance. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     | October                28, 2006 |   | January                28, 2006 |   | October                29, 2005 |
|----------|---------------------------------|--------|---------------------------------|--------|---------------------------------|
|     |  Units                     |   | %                of total       |   |  Units                     |   | %                of total |   |  Units |   | %                of total |
| Mall     | 206                             |   | 45%                             |   | 235                             |   | 47% |   | 240 |   | 48% |
| Off-mall | 199                             |   | 44                              |   | 215                             |   | 43 |   | 206 |   | 42 |
| Outlet   | 48                              |   | 11                              |   | 48                              |   | 10 |   | 48 |   | 10 |
| Total    | 453                             |   | 100%                            |   | 498                             |   | 100% |   | 494 |   | 100% |

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|                                                 | Three                Months Ended |
|------------------------------------------------------|-----------------------------------|
|   Net                revenue (in millions) | October                28, 2006   |   | October                29, 2005 |
| Retail                sales                          | $                                 | 105.4 |   | $ | 125.7 |
| Wholesale                sales                       |                              | 0.6 |   |   | 0.9 |
| Shipping                fees                         |                              | 2.1 |   |   | 1.4 |
| Other                revenue                         |                              | 0.1 |   |   | 0.1 |
| Total                revenue                         | $                                 | 108.2 |   | $ | 128.1 |
|                                                 |                              |   |   |   |   |

|                                | Three                Months Ended |
|-------------------------------------|-----------------------------------|
|  Sales                mix:     | October                28, 2006   |   | October                29, 2005 |
| Large                furniture      | 38%                               |   | 37% |
| Occasional                furniture | 14                                |   | 15 |
| Accessories                         | 33                                |   | 33 |
| Wall                decor           | 15                                |   | 15 |
| Total                revenue        | 100%                              |   | 100% |

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|                                           | Nine                Months Ended |
|------------------------------------------------|----------------------------------|
|  Net                revenue (in millions) | October                28, 2006  |   | October                29, 2005 |
| Retail                sales                    | $                                | 339.6 |   | $ | 365.8 |
| Wholesale                sales                 |                             | 2.4 |   |   | 8.3 |
| Shipping                fees                   |                             | 5.9 |   |   | 3.9 |
| Other                revenue                   |                             | 0.3 |   |   | 0.2 |
| Total                revenue                   | $                                | 348.2 |   | $ | 378.2 |

|                                | Nine                Months Ended |
|-------------------------------------|----------------------------------|
|  Sales                mix:     | October                28, 2006  |   | October                29, 2005 |
| Large                furniture      |                             | 34% |   |   | 32% |
| Occasional                furniture |                             | 16 |   |   | 18 |
| Accessories                         |                             | 34 |   |   | 34 |
| Wall                decor           |                             | 16 |   |   | 16 |
| Total                revenue        |                             | 100% |   |   | 100% |

----

----

*Inventory      Costs*

*How      Sales Taxes Collected from Customers and Remitted to Governmental Authorities      Should Be Presented in the Income Statement (That Is, Gross Versus Net      Presentation),*

----

*Accounting      for Uncertainty in Income Taxes—an interpretation of FASB Statement      No. 109*

*Fair      Value Measurements*

*Considering      the Effects of Prior Year Misstatements when Quantifying Misstatements in      Current Year Financial Statements*

----

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**We      may not have sufficient liquidity to execute our turnaround strategy. **

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|   | 10(a) | Credit                Agreement dated as of October 24, 2006 among The Bombay Company,                Inc.,                each of its subsidiaries that are signatories hereto, as Borrowers,                the                Lenders and L/C Issuers party hereto, General Electric Capital                Corporation, as Administrative Agent and Collateral Agent and GE                Canada                Finance Holding Company, as Canadian Agent (filed as Exhibit 10.1                to the                Company’s Form 8-K filed on October 27, 2006, and incorporated herein by                reference). |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(b) | Guaranty                and Security Agreement (filed as Exhibit 10.2 to the Company’s Form 8-K                filed on October 27, 2006, and incorporated herein by                reference). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(c) | Canadian                Security Agreement (filed as Exhibit 10.3 to the Company’s Form 8-K filed                on October 27, 2006, and incorporated herein by                reference). |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(d) | Deed                of Trust, Security Agreement, Assignment of Leases and Rents and                Fixture                Filing (filed as Exhibit 10.4 to the Company’s Form 8-K filed on October                27, 2006, and incorporated herein by                reference). |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31(a) | Certification                by Chief Executive Officer Pursuant to Rule 13a-15 and Rule 15d-15                of The                Securities Exchange Act of 1934, as                amended |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31(b) | Certification                by Chief Financial Officer Pursuant to Rule 13a-15 and Rule 15d-15                of The                Securities Exchange Act of 1934, as                amended |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32 | Certifications                of Registrant Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant                to                Section 906 of the Sarbanes-Oxley Act of                2002 |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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