**(**

| 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 September                  6, 2006 |
|---------------------------------------------|--------|------------------------------------------------------------------------------------------|
| Common                  stock, $1 par value |   | 36,367,951                                                                               |

----

| PART                  I - FINANCIAL INFORMATION                                                                                                   | Page                  No. |
|---------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|                                                                                                                                              |                      |
| Item                                                                                                                                              |                      |
| 1.                  Financial Statements (Unaudited)                                                                                              | 3-13                      |
| Consolidated                  Statements of Operations                                                                                            | 3                         |
| Consolidated                  Balance Sheets                                                                                                      | 4                         |
| Consolidated                  Statements of Cash Flows                                                                                            | 5                         |
| Notes                  to Consolidated Financial Statements                                                                                       | 6-13                      |
|                                                                                                                                              |                      |
| 2.                  Management’s Discussion and Analysis of Financial Condition and                  Results                  of Operations | 14-22                     |
| General                                                                                                                                           | 14-15                     |
| Executive                  Summary                                                                                                                | 15-17                     |
| Results                  of Operations                                                                                                            | 17-20                     |
| Liquidity                  and Capital Resources                                                                                                  | 21                        |
| Recent                  Accounting Pronouncements                                                                                                 | 21-22                     |
|                                                                                                                                              |                      |
| 3.                  Quantitative and Qualitative Disclosures About Market Risk                                                                    | 23                        |
|                                                                                                                                              |                      |
| 4.                  Controls and Procedures                                                                                                       | 23                        |
|                                                                                                                                              |                      |
| PART                  II - OTHER INFORMATION                                                                                                      |                      |
|                                                                                                                                              |                      |
| 1.                  Legal Proceedings                                                                                                             | 24                        |
|                                                                                                                                              |                      |
| 1A.                  Risk Factors                                                                                                                 | 24                        |
|                                                                                                                                              |                      |
| 4.                  Submission of Matters to a Vote of Security Holders                                                                           | 25                        |
|                                                                                                                                              |                      |
| 6.                  Exhibits                                                                                                                      | 26                        |
|                                                                                                                                              |                      |
| 7.                  Signatures                                                                                                                    | 27                        |

----

*(In        thousands, except per share amounts)*

|                                                                                                            |   | Three                      Months Ended |      | Six                      Months Ended |
|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|---------------------------------------|
|                                                                                                            |   |                               |      | (as                      adjusted)    |   |   |   | (as                      adjusted) |   |
|                                                                                                            |   |                               |      |                                  |   |   |   |   |   |
| Net                      revenue                                                                                |   | $                                       | 121,276   |                                  | $ | 128,047 |   | $ | 239,940 |   | $ | 250,158 |   |
| Costs                      and expenses:                                                                        |   |                                    |      |                                  |   |   |   |   |   |   |   |   |   |
| Cost                      of sales, buying and store                                                            |   |                                    |      |                                  |   |   |   |   |   |   |   |   |   |
| occupancy                      costs ...........................................                                |   |                                    | 101,477   |                                  |   | 102,421 |   |   | 196,127 |   |   | 197,621 |   |
| Selling,                      general & administrative expenses ..                                          |   |                                    | 39,539    |                                  |   | 38,977 |   |   | 79,303 |   |   | 79,036 |   |
|                                                                                                            |   |                                    |      |                                  |   |   |   |   |   |   |   |   |   |
| Operating                      loss ................................................                            |   |                                    | (19,740)  |                                  |   | (13,351) |   |   | (35,490) |   |   | (26,499) |   |
| Gain                      on sale of assets ....................................                                |   |                                    | --        |                                  |   | 560 |   |   | -- |   |   | 560 |   |
| Interest                      expense .............................................                             |   |                                    | (458)     |                                  |   | (527) |   |   | (697) |   |   | (847) |   |
| Interest                      income ...............................................                            |   |                                    | 16        |                                  |   | 9 |   |   | 48 |   |   | 17 |   |
|                                                                                                            |   |                                    |      |                                  |   |   |   |   |   |   |   |   |   |
| Loss                      before income taxes ..............................                                    |   |                                    | (20,182)  |                                  |   | (13,309) |   |   | (36,139) | _ |   | (26,769) |   |
| Income                      tax benefit ..........................................                              |   |                                    | (261)     |                                  |   | (3,957) |   |   | (665) |   |   | (9,448) |   |
| Net                      loss                      ............................................................ |   |                                    | ($19,921) |                                  |   | ($9,352) |   |   | ($35,474) |   |   | ($17,321) |   |
|                                                                                                            |   |                                    |      |                                  |   |   |   |   |   |   |   |   |   |
| Basic                      & diluted loss per share ......................                                  |   |                                    | ($0.55)   |                                  |   | ($0.26) |   |   | ($0.98) |   |   | ($0.48) |   |
|                                                                                                            |   |                                    |      |                                  |   |   |   |   |   |   |   |   |   |
| Average                      common shares outstanding .........                                                |   |                                    | 36,110    |                                  |   | 36,220 |   |   | 36,020 |   |   | 36,080 |   |
|                                                                                                            |   |                                    |      |                                  |   |   |   |   |   |   |   |   |   |

----

*(In        thousands, except per share amounts)*

|                                                                                                                                     |   | July                  29, |     | January                  28, |   | July                  30,      |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|----------|------------------------------|--------|--------------------------------|
|                                                                                                                                     |   | 2006                      |     | 2006                         |   | 2005                           |
| ASSETS                                                                                                                                   |   |                      |     |                         |   | (as                  adjusted) |
| Current                  assets:                                                                                                         |   |                      |     |                         |   |                           |
| Cash                  and cash equivalents                  ...........................................................                  |   | $                         | 3,511    |                         | $      | 4,015                          |   | $ | 10,488 |
| Inventories                  .......................................................................................                     |   |                      | 122,400  |                         |   | 128,719                        |   |   | 166,865 |
| Other                  current assets                  .......................................................................           |   |                      | 15,868   |                         |   | 14,846                         |   |   | 35,201 |
|  Total                  current assets                  .....................................................................       |   |                      | 141,779  |                         |   | 147,580                        |   |   | 212,554 |
|                                                                                                                                     |   |                      |     |                         |   |                           |   |   |   |
| Property                  and equipment, net                  ...........................................................                |   |                      | 80,698   |                         |   | 84,651                         |   |   | 89,814 |
|                                                                                                                                     |   |                      |     |                         |   |                           |   |   |   |
| Deferred                  taxes                  .....................................................................................   |   |                      | 373      |                         |   | 456                            |   |   | 6,955 |
| Goodwill,                  net                  .......................................................................................  |   |                      | 423      |                         |   | 423                            |   |   | 423 |
| Other                  assets                  ........................................................................................  |   |                      | 4,617    |                         |   | 5,631                          |   |   | 5,183 |
|  Total                  assets                  ................................................................................... |   | $                         | 227,890  |                         | $      | 238,741                        |   | $ | 314,929 |
|                                                                                                                                     |   |                      |     |                         |   |                           |   |   |   |
| LIABILITIES                  AND STOCKHOLDERS' EQUITY                                                                                    |   |                      |     |                         |   |                           |   |   |   |
| Current                  liabilities:                                                                                                    |   |                      |     |                         |   |                           |   |   |   |
| Bank                  borrowings                  ...........................................................................            |   | $                         | 28,333   |                         | $      | --                             |   | $ | 55,511 |
| Accounts                  payable and accrued expenses                  ..................................                               |   |                      | 26,174   |                         |   | 29,176                         |   |   | 33,132 |
| Gift                  certificates redeemable                  ...........................................................               |   |                      | 8,460    |                         |   | 9,224                          |   |   | 7,233 |
| Accrued                  payroll and bonuses                  .....................................................                      |   |                      | 4,198    |                         |   | 6,219                          |   |   | 4,823 |
| Accrued                  insurance                  ........................................................................             |   |                      | 5,534    |                         |   | 5,178                          |   |   | 4,435 |
| Customer                  deposits                  .......................................................................              |   |                      | 5,092    |                         |   | 4,526                          |   |   | 4,021 |
| Current                  portion of accrued rent                  ..................................................                     |   |                      | 3,743    |                         |   | 3,871                          |   |   | 3,566 |
| Other                  current liabilities                  .................................................................            |   |                      | 6,155    |                         |   | 5,834                          |   |   | 3,694 |
|  Total                  current liabilities                  .................................................................      |   |                      | 87,689   |                         |   | 64,028                         |   |   | 116,415 |
|                                                                                                                                     |   |                      |     |                         |   |                           |   |   |   |
| Accrued                  rent and other long term liabilities                  ...................................                       |   |                      | 38,860   |                         |   | 38,976                         |   |   | 35,580 |
|                                                                                                                                     |   |                      |     |                         |   |                           |   |   |   |
| 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                  ...............................................................             |   |                      | 79,962   |                         |   | 79,817                         |   |   | 79,880 |
| Retained                  earnings (deficit)                  .............................................................              |   |                      | (11,804) |                         |   | 23,669                         |   |   | 53,077 |
| Accumulated                  other comprehensive income                  ................................                                |   |                      | 2,291    |                         |   | 2,077                          |   |   | 1,050 |
| Common                  shares in treasury, at cost, 1,807,768;                                                                          |   |                      |     |                         |   |                           |   |   |   |
|  1,715,066                  and 1,826,968 shares, respectively                  .............................                       |   |                      | (7,258)  |                         |   | (7,038)                        |   |   | (7,498) |
| Deferred                  compensation                  ..................................................................               |   |                      | --       |                         |   | (938)                          |   |   | (1,725) |
|  Total                  stockholders' equity                  ............................................................          |   |                      | 101,341  |                         |   | 135,737                        |   |   | 162,934 |
|                                                                                                                                     |   |                      |     |                         |   |                           |   |   |   |
| Total                  liabilities and stockholders' equity                  .........................................                   |   | $                         | 227,890  |                         | $      | 238,741                        |   | $ | 314,929 |
|                                                                                                                                     |   |                      |     |                         |   |                           |   |   |   |

----

*(In        thousands, except per share amounts)*

|                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                          |   | Six                  Months Ended |
|                                                                                                                                                          |   | July                  29, |   | July                  30, |
|                                                                                                                                                          |   | 2006 |   | 2005 |
|                                                                                                                                                          |   |   |   | (as                  adjusted) |
| Cash                  flows from operating activities:                                                                                                        |   |   |   |   |
| Net                  loss                  .................................................................................................................. |   | $ | (35,474) |   | $ | (17,321) |
| Adjustments                  to reconcile net loss to net cash used in operating                  activities:                                                 |   |   |   |   |   |   |
|  Depreciation                  and amortization                  .....................................................................                   |   |   | 9,109 |   |   | 9,103 |
|  Stock-based                  compensation expense                  ..........................................................                           |   |   | 951 |   |   | 595 |
|  Gain                  on sale of assets                  ..................................................................................             |   |   | -- |   |   | (560) |
|  Amortization                  of landlord construction allowances and other                  ...............                                            |   |   | (1,611) |   |   | (1,934) |
| Change                  in assets and liabilities:                                                                                                            |   |   |   |   |   |   |
|  Increase                  in other assets                  ................................................................................             |   |   | (912) |   |   | (7,201) |
|  (Increase)                  decrease in inventories                  .............................................................                      |   |   | 6,534 |   |   | (22,039) |
|  Decrease                  in current liabilities                  .....................................................................                 |   |   | (4,747) |   |   | (10,098) |
|  Increase                  in noncurrent liabilities                  ...............................................................                    |   |   | 78 |   |   | 654 |
| Landlord                  construction allowances                  .................................................................                          |   |   | 1,612 |   |   | 4,606 |
| Net                  cash used in operating activities                  ............................................................                          |   |   | (24,460) |   |   | (44,195) |
|                                                                                                                                                          |   |   |   |   |   |   |
| Cash                  flows from investing activities:                                                                                                        |   |   |   |   |   |   |
|  Purchases                  of property and equipment                  .......................................................                           |   |   | (4,143) |   |   | (11,276) |
|  Proceeds                  from sale of assets                  .......................................................................                  |   |   | -- |   |   | 575 |
| Net                  cash used in investing activities                  ...............................................................                       |   |   | (4,143) |   |   | (10,701) |
|                                                                                                                                                          |   |   |   |   |   |   |
| Cash                  flows from financing activities:                                                                                                        |   |   |   |   |   |   |
|  Net                  bank borrowings                  .....................................................................................             |   |   | 28,333 |   |   | 55,511 |
|  Increase                  in outstanding checks in excess of cash balances                  ...................                                         |   |   | (295) |   |   | -- |
|  Proceeds                  from the exercise of employee stock options                  ..........................                                       |   |   | 2 |   |   | 669 |
|  Sale                  of stock to employee benefit plans and other                  ..................................                                  |   |   | 81 |   |   | 141 |
| Net                  cash provided by financing activities                  ......................................................                            |   |   | 28,121 |   |   | 56,321 |
|                                                                                                                                                          |   |   |   |   |   |   |
| Effect                  of exchange rate change on cash and cash equivalents                  .......................                                         |   |   | (22) |   |   | (105) |
|                                                                                                                                                          |   |   |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                  ......................................                                 |   |   | (504) |   |   | 1,320 |
| Cash                  and cash equivalents at beginning of period                  .............................................                              |   |   | 4,015 |   |   | 9,168 |
| Cash                  and cash equivalents at end of period                  ........................................................                         |   | $ | 3,511 |   | $ | 10,488 |
|                                                                                                                                                          |   |   |   |   |   |   |
| Supplemental                  disclosure of cash flow information:                                                                                            |   |   |   |   |   |   |
| Interest                  paid                  ...........................................................................................................   |   | $ | 391 |   | $ | 786 |
| Income                  taxes paid                  ..................................................................................................        |   |   | 58 |   |   | 243 |
| Non-cash                  investing and financing activities:                                                                                                 |   |   |   |   |   |   |
| Distributions                  of restricted stock                  ........................................................................                  |   |   | 18 |   |   | 1,145 |
| Cancellations                  of restricted stock                  .......................................................................                   |   |   | (310) |   |   | (156) |
| Distribution                  of director fees                  ...............................................................................               |   |   | 50 |   |   | 60 |
|                                                                                                                                                          |
| The                  accompanying notes are an integral part of these consolidated financial                  statements.                                     |

----

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

**General**

**Capital        Resources and Liquidity**

**Loss        per Share**

----

|                                                                                                       |   | Three                  Months Ended |     | Six                  Months Ended |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|-----------------------------------|
|                                                                                                       |   | July                  29,           |     | July                  30,         |   | July                  29, |   | July                  30, |
|                                                                                                       |   | 2006                                |     | 2005                              |   | 2006 |   | 2005 |
|                                                                                                       |   |                                |     | (as                  adjusted)    |   |   |   | (as                  adjusted) |
| Numerator                                                                                                  |   |                                |     |                              |   |   |   |   |
| Net                  loss                  ............................................................... |   | $                                   | (19,921) |                              | $ | (9,352) |   | $ | (35,474) |  | $ | (17,321) |
| Denominator                  for basic and diluted loss per share:                                         |   |                                |     |                              |   |   |   |   |   |   |   |   |
| Average                  common shares outstanding ...........                                             |   |                                | 36,110   |                              |   | 36,220 |   |   | 36,020 |   |   | 36,080 |
| Basic                  and diluted loss per share ....................                                     |   | $                                   | (0.55)   |                                   | $ | (0.26) |   | $ | (0.98) |   | $ | (0.48) |
|                                                                                                       |   |                                |     |                              |   |   |   |   |   |   |   |   |

|                                                                                                            |   | Period                  Ended |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------------------|
|                                                                                                            |   | July                  29,     |   | July                  30, |
|                                                                                                            |   | 2006                          |   | 2005 |
| Stock                  options                  ............................................................... |   |                          | 4,269 |   |   | 3,240 |
| Unvested                  restricted stock                  ..........................................          |   |                          | 97 |   |   | -- |
| Deferred                  director stock units                  ......................................          |   |                          | 106 |   |   | 67 |
| Total                  ................................................................................         |   |                          | 4,472 |   |   | 3,307 |
|                                                                                                            |   |                          |   |   |   |   |

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

*Accounting        for Rental Costs Incurred During a Construction Period*

----

|                                                                                                                                                                                |   | **As                  of July 30, 2005**                    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|
|                                                                                                                                                                                |   | As                  Reported                                |   | Impact                  of Restatement |   | As                  Restated |
| **Consolidated                  Balance Sheet**                                                                                                                                     |   |                                                        |   |   |   |   |
| Property                  and equipment, net                  .......................................................................                                               |   | $                                                           | 94,994 |   | $ | (5,180) |   | $ | 89,814 |
| Other                  assets                  ..................................................................................................                                   |   |                                                        | 10,660 |   |   | 1,901 |   |   | 12,561 |
| Total                  assets                  ...................................................................................................                                  |   |                                                        | 318,208 |   |   | (3,279) |   |   | 314,929 |
| Accum.                  other comprehensive                  income .....................................................                                                      |   |                                                        | 1,042 |   |   | 8 |   |   | 1,050 |
| Retained                  earnings                  .......................................................................................                                         |   |                                                        | 56,364 |   |   | (3,287) |   |   | 53,077 |
| Total                  stockholders’                  equity .........................................................................                                   |   |                                                        | 166,213 |   |   | (3,279) |   |   | 162,934 |
| Total                  liabilities & stockholders’ equity                  ......................................................                                         |   |                                                        | 318,208 |   |   | (3,279) |   |   | 314,929 |
|                                                                                                                                                                                |   |                                                        |   |   |   |   |   |   |   |
|                                                                                                                                                                                |   | **Three                  Months Ended July 30, 2005**  |
|                                                                                                                                                                                |   |                                                        | As                  Reported  |   |   | Impact                  of Restatement |   |   | As                  Restated |
| **Consolidated                  Statement of Operations**                                                                                                                           |   |                                                        |   |   |   |   |   |   |   |
| Cost                  of sales, buying and store                  occupancy                  costs................................................................................. |   | $                                                           | 102,448 |   | $ | (27) |   | $ | 102,421 |
| Loss                  before income taxes                  ............................................................................                                             |   |                                                        | (13,336) |   |   | 27 |   |   | (13,309) |
| Income                  tax benefit                  .......................................................................................                                        |   |                                                        | (3,965) |   |   | 8 |   |   | (3,957) |
| Net                  loss                  .........................................................................................................                                |   |                                                        | (9,371) |  |   | 19 |   |   | (9,352) |
| Basic                  loss per share                  ...................................................................................                                          |   | $                                                           | (0.26) |   |   | -- |   | $ | (0.26) |
| Diluted                  loss per share                  .................................................................................                                          |   | $                                                           | (0.26) |   |   | -- |   | $ | (0.26) |
|                                                                                                                                                                                |   |                                                        |   |   |   |   |   |   |   |
|                                                                                                                                                                                |   | **Six                  Months Ended July 30, 2005**    |
|                                                                                                                                                                                |   |                                                        | As                  Reported  |   |   | Impact                  of Restatement |   |   | As                  Restated |
| **Consolidated                  Statement of Operations**                                                                                                                           |   |                                                        |   |   |   |   |   |   |   |
| Cost                  of sales, buying and store                  occupancy costs                  ................................................................................ |   | $                                                           | 197,701 |   | $ | (80) |   | $ | 197,621 |
| Loss                  before income taxes                  ...........................................................................                                              |   |                                                        | (26,849) |   |   | 80 |   |   | (26,769) |
| Income                  tax benefit                  .......................................................................................                                        |   |                                                        | (9,478) |   |   | 30 |   |   | (9,448) |
| Net                  loss                  .........................................................................................................                                |   |                                                        | (17,371) |   |   | 50 |   |   | (17,321) |
| Basic                  loss per share                  ....................................................................................                                         |   | $                                                           | (0.48) |   |   | -- |   | $ | (0.48) |
| Diluted                  loss per share                  ...................................................................................                                        |   | $                                                           | (0.48) |  |   | -- |   | $ | (0.48) |

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

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

----

| (In                  thousands, except per share data)                                                                                                                                                                                                                                                 |   | Three                  Months  |    | SixMonths                      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|--------------------------------|
|                                                                                                                                                                                                                                                                                                   |   | (as                  adjusted) |    | (as                  adjusted) |
| Net                  loss as reported                  .......................................................................................................................                                                                                                                         |   | $                              | (9,352) |                           | $ | (17,321) |
| Stock-based                  employee compensation expense included in reported net income,                  net of                  related tax effects                  ............................................................................................................................ |   |                           | 240     |                           |   | 386 |
| Fair                  value based compensation expense, net of tax                  ..................................................................                                                                                                                                                 |   |                           | (622)   |                           |   | (1,107) |
| Net                  loss, pro forma                  ........................................................................................................................                                                                                                                         |   | $                              | (9,734) |                           | $ | (18,042) |
|                                                                                                                                                                                                                                                                                                   |   |                           |    |                           |   |   |
| Basic                  loss per share, as reported                  ..................................................................................................                                                                                                                                 |   | $                              | (0.26)  |                           | $ | (0.48) |
| Pro                  forma under SFAS 123                  .............................................................................................................                                                                                                                               |   | $                              | (0.27)  |                           | $ | (0.50) |

*Stock        Options*

|                                                                                                          |   | Three                  Months Ended |   | Six                  Months Ended |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|-----------------------------------|
|                                                                                                          |   | July                  29,2006       |   | July                  30,2005     |   | July                  29,2006 |   | July                  30,2005 |
| Risk                  free interest rate                  ................................................... |   |                                | 5.0%   |                              |   | 4.1% |   |   | 4.8% |   |   | 4.3% |
| Expected                  term (in years)                  .............................................      |   |                                | 6.5    |                              |   | 6.0 |   |   | 6.2 |   |   | 6.0 |
| Expected                  volatility                  ......................................................  |   |                                | 61.8%  |                              |   | 64.1% |   |   | 62.6% |   |   | 64.1% |
| Expected                  dividend yield                  ............................................        |   |                                | --     |                              |   | -- |   |   | -- |   |   | -- |
| Weighted                  average fair value of options granted ....                                          |   | $                                   | 1.41   |                              | $ | 3.24 |   | $ | 1.80 |   | $ | 2.99 |

----

|                                                                     |   |                            |   |     |   | 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                  ............................................... |   |                            | 1,469  |     | $      | 2.87                          |   |                            |   |   |   |   |
| Exercised                  ...........................................   |   |                            | 1      |     | $      | 3.21                          |   |                            |   |   | $ | 3 |
| Forfeited                  or expired .........................          |   |                            | 367    |     | $      | 3.65                          |   |                            |   |   |   |   |
| Outstanding                  at July 29, 2006 .........                  |   |                            | 4,269  |     | $      | 4.76                          |   |                            | 6.5 |   | $ | 20,325 |
|                                                                     |   |                            |   |     |   |                          |   |                            |   |   |   |   |
| Exercisable                  at July 29, 2006 .............              |   |                            | 3,009  |     | $      | 5.57                          |   |                            | 6.6 |   | $ | 16,766 |

*Restricted        Stock*

|   Restricted                  Stock                                         |   |  Shares |    | Weighted                  AverageGrant                  Date Fair                  Value |
|---------------------------------------------------------------------------------------|--------|--------------|---------|------------------------------------------------------------------------------------------|
| Nonvested                  at January 28, 2006 ....................                   |   |         | 514,274 |                                                                                     | $ | 6.25 |
| Granted                  ............................................................ |   |         | 5,000   |                                                                                     | $ | 3.15 |
| Vested                  ............................................................. |   |         | 363,397 |                                                                                     | $ | 6.63 |
| Forfeited                  .........................................................  |   |         | 59,188  |                                                                                     | $ | 5.20 |
| Nonvested                  at July 29, 2006 .........................                 |   |         | 96,689  |                                                                                     | $ | 5.33 |
|                                                                                  |   |         |    |                                                                                     |   |   |

----

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

|                                                                                                       |   | Three                  Months Ended |     | Six                  Months Ended |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|-----------------------------------|
|                                                                                                       |   | July                  29,2006       |     | July                  30,2005     |   | July                  29,2006 |   | July                  30,2005 |
|                                                                                                       |   |                                |     | (as                  adjusted)    |   |   |   | (as                  adjusted) |
| Net                  loss                  ............................................................... |   | $                                   | (19,921) |                              | $ | (9,352) |   | $ | (35,474) |   | $ | (17,321) |
| Foreign                  currency translation adjustments ......                                           |   |                                | (136)    |                              |   | 249 |   |   | 214 |   |   | 99 |
| Comprehensive                  loss .........................................                              |   | $                                   | (20,057) |                              | $ | (9,103) |   | $ | (35,260) |   | $ | (17,222) |
|                                                                                                       |   |                                |     |                              |   |   |   |   |   |   |   |   |

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

*Accounting        for Income Taxes*

*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*

|                                                    |   | Three                  Months Ended |    | Six                  Months Ended |
|---------------------------------------------------------|--------|-------------------------------------|---------|-----------------------------------|
|                                                    |   | July                  29, 2006      |    | July                  30, 2005    |   | July                  29, 2006 |   | July                  30, 2005 |
| Net                  revenue:                           |   |                                |    |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| United                  States ..................       |   | $                                   | 104,166 |                              |   | 85.9% |   | $ | 112,404 |   |   | 87.8% |   | $ | 206,117 |   |   | 85.9% |   | $ | 219,586 |   |   | 87.8% |
| Canada                  ............................    |   |                                | 17,110  |                              |   | 14.1% |   |   | 15,643 |   |   | 12.2% |   |   | 33,823 |   |   | 14.1% |   |   | 30,572 |   |   | 12.2% |
| Total                  ................................ |   | $                                   | 121,276 |                              |   | 100.0% |   | $ | 128,047 |   |   | 100.0% |   | $ | 239,940 |   |   | 100.0% |   | $ | 250,158 |   |   | 100.0% |
|                                                    |   |                                |    |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                     |   | As                  of         |
|--------------------------------------------------------------------------|--------|--------------------------------|
|                                                                     |   | July                  29, 2006 |   | July                  30, 2005 |
|                                                                     |   |                           |   | (as                  adjusted) |
| Long-lived                  assets:                                      |   |                           |   |   |   |   |   |   |
| United                  States ...................................       |   | $                              | 74,608 |   |   | 87.0% |   | $ | 85,507 |   |   | 89.6% |
| Canada                  .............................................    |   |                           | 11,130 |   |   | 13.0% |   |   | 9,913 |   |   | 10.4% |
| Total                  ................................................. |   | $                              | 85,738 |   |   | 100.0% |   | $ | 95,420 |   |   | 100.0% |
|                                                                     |   |                           |   |   |   |   |   |   |   |   |   |   |

----

| ·   | extends                the seasonal advance rate period, during which time the rate at which                the                bank is willing to advance funds against inventory increases, such                that                the seasonal advance rate period begins September 15 rather than                October                15; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | provides                for an incremental facility, calculated as the lesser of $7.5 million                or                95% of appraised value of the Company’s eligible inventory during the                periods from Sept 15, 2006 to Dec 15, 2006 and Sept 15, 2007 to Dec                15,                2007; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | upon                activation of the incremental facility, increases the interest rate                charged on the entire facility by 25 basis points throughout the                term of                each incremental period; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | permits                the inclusion of certain Canadian in-transit inventory in the calculation                of the borrowing base; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | modifies                the provision relating to the $50 million accordion feature, which                the                Company does not currently have plans to utilize, such that it is                an                option subject to full underwriting, approval and successful syndication                rather than a commitment by the lenders. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Accounting        for Rental Costs Incurred During a Construction Period*

----

| ·   | Selling                unproductive and often old inventory from our stores and distribution                system - In order to reduce undesirable inventory that was not consistent                with the 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. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Strengthening                our store merchandise presentation - The Company modified its store                merchandise presentation approach to be more customer friendly and                understandable by realigning rooms for a more logical product adjacency.                During Fiscal 2005, the Company updated its store presentation to                a                lifestyle presentation with products shown in a rooms setting as                opposed                to the category presentation previously used. In order to better                showcase                the product and improve the customer shopping experience, the rooms                presentation rolled out during early August has been refined to show                like                product in close proximity which enables the customer to easily compare                “good, better, best” offerings. In addition, aisles have been widened to                enable the customer to shop the store with greater                ease. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Developing                in-store presentations designed to increase 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. We are                streamlining the SKU count, focusing on the most productive items                and                editing the assortment to help better manage in-stock availability                on key                volume drivers and reduce clutter. We expect that the achievement                of these                changes will take several months. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Strengthening                the merchandise buy for the second half of the year in key categories                - To                support the focus on signature items, on-order quantities of key                items and                categories were increased to help ensure that we have adequate inventory                in those areas to support sales goals for the second half of Fiscal                2006. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | 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 estimated to be approximately $1.5 million,                of which $0.8 million of expense was incurred during the second quarter.                The remainder is expected to be 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 email campaigns                which have had favorable response rates, to drive traffic to our                stores.                As a result, the Company expects to reduce its marketing cost by                approximately $6 million during the second half of Fiscal                2006. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Converting                our BombayKIDS operations to core assortments - Currently, we have                60                BombayKIDS stores, 56 of which are 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 12 to 18 months, we plan to convert square                footage                currently occupied by BombayKIDS to the core assortment in order                to                improve the overall productivity and cash flow of the store. We expect                to                make an orderly transition between the assortments - focusing to                maximize                inventory value where possible during the conversion of approximately                20                stores during the second half of Fiscal 2006. The remaining stores                will be                converted during Fiscal 2007. We expect the change to result in an                improved focus on returning the core operations to profitability                and                eliminating the BombayKIDS operation which during Fiscal 2005 lost                approximately $4.2 million at store level before overhead allocations.                Additionally, we will eliminate expenditures for dedicated BombayKIDS                marketing of approximately $3 million. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Reducing                discretionary in-store markdowns - Enhanced compliance in our field                organization with policies restricting the individual store’s ability to                adjust product pricing is expected to result in savings of approximately                $11 million. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                              |   | July                  29, 2006 |   | January                  28, 2006 |   | July                  30, 2005 |
|---------------------------------------------------|--------|--------------------------------|--------|-----------------------------------|--------|--------------------------------|
|                                              |   |  Units                    |   | %                  of total       |   |  Units                    |   | %                  of total |   |  Units |   | %                  of total |
| Mall                  ........................... |   |                           | 213    |                              |   | 45%                            |   |   | 235 |   |   | 47% |   |   | 248 |   |   | 50% |
| Off-mall                  ....................    |   |                           | 215    |                              |   | 46                             |   |   | 215 |   |   | 43 |   |   | 199 |   |   | 40 |
| Outlet                  .......................   |   |                           | 44     |                              |   | 9                              |   |   | 48 |   |   | 10 |   |   | 48 |   |   | 10 |
| Total                  ........................   |   |                           | 472    |                              |   | 100%                           |   |   | 498 |   |   | 100% |   |   | 495 |   |   | 100% |
|                                              |   |                           |   |                              |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                                         |   | Three                  Months Ended |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|
|  Net                  revenue (in millions)                                                             |   |                                | July                  29, 2006 |   |   | July                  30, 2005 |
| Retail                  sales                  ............................................................. |   | $                                   | 118.6 |   | $ | 123.0 |
| Wholesale                  sales ...................................................                         |   |                                | 0.6 |   |   | 3.9 |
| Shipping                  revenue ................................................                           |   |                                | 2.0 |   |   | 1.0 |
| Other                  revenue                  ......................................................       |   |                                | 0.1 |   |   | 0.1 |
| Total                  revenue                  ......................................................       |   | $                                   | 121.3 |   | $ | 128.0 |
|                                                                                                         |   |                                |   |   |   |   |

----

|                                                                                                      |   | Three                  Months Ended |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------|
|  Sales                  mix:                                                                         |   | July                  29, 2006      |   | July                  30, 2005 |
| Large                  furniture                  ....................................................... |   |                                | 29% |  |   | 29% |
| Occasional                  furniture .............................................                       |   |                                | 15 |   |   | 18 |
| Accessories                  ..........................................................                   |   |                                | 39 |   |   | 37 |
| Wall                  decor                  ............................................................ |   |                                | 17 |   |   | 16 |
| Total                  revenue                  ......................................................    |   |                                | 100% |   |   | 100% |
|                                                                                                      |   |                                |   |   |   |   |

----

|                                                                                                        |   | Six                  Months Ended |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|
|  Net                  revenue (in millions)                                                            |   | July                  29, 2006    |   | July                  30, 2005 |
| Retail                  sales                  ............................................................ |   | $                                 | 234.1 |   | $ | 240.1 |
| Wholesale                  sales ..................................................                         |   |                              | 1.9 |   |   | 7.4 |
| Shipping                  revenue ...............................................                           |   |                              | 3.7 |   |   | 2.5 |
| Other                  revenue                  .....................................................       |   |                              | 0.2 |   |   | 0.2 |
| Total                  revenue                  .....................................................       |   | $                                 | 239.9 |   | $ | 250.2 |
|                                                                                                        |   |                              |   |   |   |   |

----

|                                                                                                     |   | Six                  Months Ended |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|
|  Sales                  mix:                                                                        |   | July                  29, 2006    |   | July                  30, 2005 |
| Large                  furniture                  ...................................................... |   |                              | 33% |  |   | 31% |
| Occasional                  furniture ...........................................                        |   |                              | 16 |   |   | 19 |
| Accessories                  .........................................................                   |   |                              | 35 |   |   | 34 |
| Wall                  decor                  ........................................................... |   |                              | 16 |   |   | 16 |
| Total                  revenue                  .....................................................    |   |                              | 100% |   |   | 100% |
|                                                                                                     |   |                              |   |   |   |   |

----

*Share-Based        Payment*

----

*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*

----

----

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

----

| (a)   | The                Annual Meeting of Shareholders of the Company was held on June 22,                2006. |
|-----------------|------------------------------------------------------------------------------------------------------------|
| (b)   | Directors                elected to hold office are listed in the Company’s Definitive Proxy                Statement, filed with the Commission on May 16, 2006 and incorporated                herein by reference. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Class                  C Directors elected:                                                                                                                                                                                             | Paul                  V. Higham and Nigel Travis                                                                                                                                                                 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                   Continuing directors: | David                  B. Stewart, Susan T. Groenteman, Laurie M. Shahon, Paul J. Raffin,                  Julie                  L. Reinganum, Bruce R. Smith, Paul V. Higham and Nigel                  Travis |

| (c)   | The                following items were subject to a vote of the                shareholders. |
|-----------------|-----------------------------------------------------------------------------------------------|
| (i)   | Election                of Class C Directors: |
|-----------------|-----------------------------------------------|

| Name                            | For        | Withheld  |
|---------------------------------|------------|-----------|
| Paul                  V. Higham | 27,831,962 | 5,848,043 |
| Nigel                  Travis   | 27,974,424 | 5,705,581 |

| (ii)   | Approval                of the 2006 Non-Employee Director Stock Payment                Plan: |
|------------------|----------------------------------------------------------------------------------------------|

| For        | Against   | Abstain |
|------------|-----------|---------|
| 14,842,807 | 6,258,585 | 68,955  |
|       |      |    |

| (iii)   | Approval                of the 2006 Employee Stock Incentive Plan |
|-------------------|-------------------------------------------------------------------|

| For        | Against   | Abstain |
|------------|-----------|---------|
| 12,753,679 | 8,335,045 | 81,624  |
|       |      |    |

----

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

----

----